Highlights of the Mid Quarter Review of Monetary Policy 2012-13 - (September 2012)

Compiled  by

Rajesh Goyal

On 17th September, 2012, RBI undertook Mid-Quarter Monetary Policy Review (September 2012) and issued a statement, the highlights of which were : -

POLICY MEASURES:

* Repo, Reverse Repo, Bank Rate, MSF rates were kept unchanged;

* Cash Reserve Ratio (CRR) has been reduced by 25 basis points to 4.50 percent, wef fortnight beginning September 22. 2012

* Statutory Liquidity Ratio stays at 23 percent of deposits.

POLICY STANCE:

* Primary focus of monetary policy continues to be containing inflation and anchoring inflation expectations.

* Though demand pressures  has moderated,  yet supply constraints and rupee depreciation are imparting pressures on prices.

* As policy actions to stimulate growth materialise, monetary policy will reinforce the positive impact of these actions while maintaining its focus on inflation management.

* Government’s recent actions have initiated a shift in expenditure away from consumption (subsidies) and towards investment (including through FDI).

* See pressures on inflation in the short term due to upward revision in diesel prices and rationalisation of LPG subsidy.

* Revisions in diesel prices and LPG subsidy were anticipated at the time of April policy.

* Risks from global factors, in terms of both capital movements and oil prices, will persist.

LIQUIDITY

* There could be pressure on liquidity in next few weeks,  due to outflows toward advance tax payments and the onset of festival-related currency demand.

 

GROWTH, ECONOMY

* Wedge between deposit growth and credit growth could widen on the back of the seasonal pickup in credit demand in the second half of the year.

* Persistent inflationary pressures alongside risks emerging from twin deficits, constrain a stronger response of monetary policy to growth risks