Date: Oct 29, 2013 Second Quarter Review of Monetary Policy 2013-14 By Dr. Raghuram G. Rajan Governor Part A. Monetary Policy Monetary and Liquidity Measures Following an assessment of the evolving macroeconomic situation, the Reserve Bank has decided to: · reduce the marginal standing facility (MSF) rate by 25 basis points from 9.0 per cent to 8.75 per cent with immediate effect; · increase the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 7.5 per cent to 7.75 per cent with immediate effect · keep cash reserve ratio (CRR) unchanged at 4.0 per cent of net demand and time liability (NDTL); and · increase the liquidity provided through term repos of 7-day and 14-day tenor from 0.25 per cent of NDTL of the banking system to 0.5 per cent with immediate effect. Consequently, the reverse repo rate under the LAF stands adjusted to 6.75 per cent and the Bank Rate stands reduced to 8.75 per cent with immediate effect. With these changes, the MSF rate and the Bank Rate are recalibrated to 100 basis points above the repo rate. Assessment 2. Since the Mid-Quarter Review in September, the outlook for global growth has improved modestly, with fiscal concerns abating in the US and lead indicators of activity firming up in the Euro area and the UK. 3. In emerging and developing economies, the prospect of delay in the taper of the Federal Reserve’s bond purchases has brought calm to financial markets, and capital flows have resumed. Nevertheless, headwinds to growth from domestic constraints continue to pose downside risks, and vulnerabilities to sudden shifts in the external environment remain. 4. In India, industrial activity has weakened, with a contraction in consumer durables and tepid growth in capital goods reflecting the ongoing downturn in both consumption and investment demand. Strengthening export growth and signs of revival in some services, along with the expected pick-up in agriculture, could support an increase in growth in the second half of 2013-14 relative to the first half, raising real GDP growth from 4.4 per cent in Q1 to a central estimate of 5.0 per cent for the year as a whole (Chart 1). The revival of large stalled projects and the pipeline cleared by the Cabinet Committee on Investment may buoy investment and overall activity towards the close of the year.
Posted on: Tue, 29 Oct 2013 06:15:49 +0000