JOIN USRBI keeps rate unchanged; cuts SLR by 50 basis points
The Reserve Bank of India (RBI) kept policy rates unchanged in its sixth bi-monthly monetary policy, but cut the statutory liquidity ratio (SLR) by 50 basis points to 21.5 per cent from 22 per cent.
SLR is the reserve requirement that commercial banks in India require to maintain in the form of gold, cash or government-approved securities before providing credit to the customers.
“In order to create space for banks to expand credit, the SLR is being reduced from 22 per cent to 21.5 per cent. Banks should use this headroom to increase their lending to productive sectors on competitive terms so as to support investment and growth,” RBI said in its policy statement.
The repo rate was left unchanged at 7.75 per cent while the cash reserve ratio (CRR) was maintained at 4 per cent.
“Given no developments on the inflation and fiscal fronts since the rate cut in January, we have maintained interest rates,” RBI Governor Raghuram Rajan said.
“We have taken other actions -- many of these are intended to further the growth process and some are intended to enhance stability of the system,” Rajan added.
Commenting on further rate action by the central bank, Rajan said that it will very much depend upon the budget and other fiscal developments.
Fiscal developments key
“For guidance going forward, it remains what it was when we cut rates. Further action will be in the direction that was initiated and it will depend on developments, in particular, on developments on the fiscal front as well as a continuation of the disinflationary process,” Rajan said.
“We would like to see disinflationary process continue and of course, on the fiscal front, we have the budget coming up. These are important developments that we will pay attention to,” Rajan added.
The Reserve Bank of India had cut repo rate by 25 basis points to 7.75 per cent in January in a move that had surprised the markets.
RBI also decided to replace the export credit refinance (ECR) facility with the provision of system level liquidity with effect from February 7, 2015.
Experts believe that the actions by RBI were very much along expected lines.
“The RBI policy was in line with market expectations of a status-quo. The SLR cut is expected to provide growth supportive liquidity of about Rs 45,000 crore,” SBI Chairman Arundhati Bhattacharya said.
The flexibility regarding the date of commencement of commercial operations (DCCO) will enthuse companies with strong balance sheets to consider taking over stuck projects. With inflationary expectations at a 21 quarter low and coupled with a benign global environment, we are in the early phases of a prolonged rate easing cycle, Bhattacharya added.
“The decision to hold policy rates was expected given the rate cut just a few weeks ago, and in line with the central bank’s approach of observing the inflation trends over a period of time before taking policy action,” ICICI Managing Director and CEO Chanda Kochhar said.
Regulatory measures
“Several regulatory measures announced in the policy are very welcome. These include measures to enhance the ability of bankers to protect their interests as well as maximise the value of assets created in the economy,” she said.
“The introduction of differential rate structures for non-callable deposits will help banks in asset-liability management.”
“The liberalisation of outward remittance limits reflects the substantial reduction in our vulnerability to external events,” Kochhar added.
“The policy was along expected lines with regard to status quo in policy rates. The SLR cut by 0.5 per cent will make about Rs 43,000 crore available to the banking system for lending. This may push banks to respond to repo rate cut introduced on January 15, 2015 by RBI,” Bank of India Chairperson and Managing Director V R Iyer said.
Rajan acts Reduced SLR of commercial banks by 50 basis points from 22.0 per cent to 21.5 per cent
Replaced export credit refinance facility with system level liquidity
Continues with liquidity under overnight repos of 0.25 per cent of bank-wise NDTL at the LAF repo rate.
Continues with liquidity under 7-day and 14-day term repos of up to 0.75 per cent of NDTL through auctions
Continues with daily variable rate term repo and reverse repo auctions to smoothen liquidity