Key rates unchanged, growth target cut in RBI policy review

January 27th, 2009 - 1:24 pm ICT by IANS  

Mumbai, Jan 27 (IANS) India’s central bank decided to maintain status quo on key rates and lowered the country’s growth target for this fiscal to seven percent as it presented the third quarter review of its monetary policy here Tuesday.The benchmark bank rate, the repurchase rate, the reverse repurchase rate, the cash reserve ratio (CRR) and the statutory liquidity ratio (SLR) were all kept unchanged by Reserve Bank of India (RBI) Governor D. Subbarao.

The central bank governor also said he was lowering the forecast for the growth of gross domestic product (GDP) to 7 percent against 7.5-8 percent earlier due to the slowdown in exports and industrial production.

“As an integral part of a globalising world, India cannot be expected to remain immune to a global crisis of this nature and magnitude. And in responding to the crisis, India has to share the uncertainty on the way forward just like the rest of the world,” he said.

The repo rate, currently at 5.5 percent, is the interest charged by the RBI on borrowings by the commercial banks. A reduction in the same lowers the cost of borrowings for commercial banks.

The reverse repo rate, currently at 4 percent, is the rate at which the central bank borrows money from commercial banks. A lowering of this rate makes it less lucrative for banks to park funds with the central bank.

The CRR, now at 5 percent, is the minimum cash commercial banks have to retain against deposits, while SLR, the amount such institutions have to maintain in the form of government securities, is at 24 percent.

A cut in these two rates helps inject more money into the financial system.

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