CURRENT UPDATE : RBI MID-QUARTER MONETARY POLICY

RBI INCREASES REPO RATE TO 7.50%; RETAINS CASH RESERVE RATIO AT 4%

The Reserve Bank of India Governor Raghuram Rajan today hiked the key repo rate by 0.25 per cent to 7.5 per cent. The repo rate is the rate at which banks borrow short term money from the RBI. Rajan said that the central bank's move to hike rates is aimed at reigning in the rising inflation.

Monetary and Liquidity Measures

On the basis of an assessment of the current and evolving macroeconomic situation, it has been decided to:

Ä Reduce the marginal standing facility (MSF) rate by 75 basis points from 10.25 percent to 9.5 percent with immediate effect.

Ä Reduce the minimum daily maintenance of the cash reserve ratio (CRR) from  99 percent of the requirement to 95 percent effective from the fortnight  beginning September 21, 2013, while keeping the CRR unchanged at 4.0 percent. CRR is the amount of money banks have to park with the Reserve Bank.

Ä Increase the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 7.25 percent to 7.5 percent with immediate effect.

Consequently, the reverse repo rate under the LAF stands adjusted to 6.5 percent and the Bank Rate stands reduced to 9.5 percent with immediate effect. With these changes, the MSF rate and the Bank Rate are recalibrated to 200 basis points above the repo rate.

CURRENT RATES
POLICY RATES	BANK RATE	9.50%
	REPO RATE	7.50%
	REVERSE REPO RATE	6.50%
	MARGINAL STANDING FACILITY RATE	9.50%
RESERVE RATIO	CRR	4%
	SLR	23%
LENDING RATE	BASE RATE	9.70% - 10.25%

Following are the highlights of RBI's mid-quarter monetary policy review: 

F Key short-term lending rate (repo rate) hiked by 0.25 pc to 7.50 pc. 

F Borrowing rate for banks reduced under MSF by 0.75 pc to 9.5 pc. 

F Eases minimum daily liquidity maintenance of CRR to 95 pc from 99 pc. 

F Maiden policy announcement by new RBI Governor Raghuram Rajan. 

F Retains Cash Reserve Ratio (CRR) at 4 pc. 

F Inflation worrisome, no room for complacency. 

F WPI inflation will be higher than that projected for rest of the year. 

F Economic growth trailing below potential. 

F Pace of infrastructure project completion subdued, new projects' starts remain muted. 

Next monetary policy review on 29th October.