Highlights of Monetary Policy Statement Issued on 18th June, 2012

Dr. D. Subbarao in statement on the Monetary Policy issued on 18th June, 2012 ,  has announced the following

(A) POLICY MEASURES:

* No change in Repo Rate, and it to remain at 8.00 percent;

* No change in Reverse repo and it ro remain at 7.00 percent

* No change in Bank Rate and MSF and these to remain at 9.00 percent

* Cash Reserve Ratio ( CRR ) too remains unchanged at 4.75% . Similarly SLR remains unchanged at 24%

(B) Overview of current economic scenario:

* Global Macroeconomic and financial conditins have deteriorated since last Monetary policy statement in April 2012

* Headline inflation remains above levels.  Even real inflation is also on an uptrend

* RBI had frontloaded policy reduction in April with a cut of 50 bps on certain premises but there is slow down in activity, particulrly in investment, with the role of interest rates being relatively small.

* Any further cut at this stage in policy interest rates is likely to exacerbate inflationary pressures 

(C )Global Economy

* Euro area sovereign debt problem is continued to weight on global recovery.  There is still vulnerability of the banking sector owing to sovereign debt problems

*

(D) Domestic Economy:

* Economic activity has moderated in 2011-12 and growth has slumped to 5.3% in Q4 (For the whole year it was 6.5%)

* The assessment indicates that factors other than interest rates are more responsible for growth slowdown

* The rupee depreciation has increased the competitiveness of domestic producers over foreign products and thus should result in higher exports and reduced imports.  Thus acting as a demand stimulus.

(E) Inflation :

* Headline WPI inflation rate has moderated from a peak of 10% in September, 2011 to 7.7% in March 2012.  But in May 2012 it has again gone upto to 7.6%, driven by food and fuel prices

*  International crude prices have fallen significantly from April 2012 levels, but rupee depreciation has offset its impact on wholesale prices.

* CPI inflation rose from 8.8% in February to 9.4% in March and further to 10.4% in April 2012.   Thus, wholesale price inflation has not transmitted to retail level.

Liquidity Conditions :

* This remains stable on account of various measures taken by RBI

Guidance :

* Management of liquidity remains a priority.