RBI Cuts SLR by 50 bps, Keeping Repo Rate Unchanged

Moratorium BenefitsCutting the expectations of the next rate cut, RBI in its sixth bi-monthly Monetary Policy review, left rates unchanged. However, it announced a reduction in SLR (Statutory Liquidity Ratio) by 50 bps i.e. from 22% to 21.5 % with effect from 7 February 2015. SLR is the amount of bonds that lenders must set aside. This is done in a bid to create more space for banks to inject credit into the economy. It will increase liberties in market and banks may lower their lending rates.

“To get that lending they will have to be more competitive, which means they will have to cut base rate. I am hopeful it is a matter of time before banks judge that they should pass it on,” Rajan told a news conference.

The policy repo rate remains unchanged at 7.75% until the government presents its annual budget.

CRR (Cash Reserve Ratio) is also same at 4%, Reverse Repo Rate at 6.75%, and the marginal standing facility (MSF) rate and the Bank Rate at 8.75%.

The RBI is looking forward to numbers like upcoming Inflation numbers, GDP numbers, and the Union Budget, for its further decisions.

“Given that there have been no substantial new developments on the disinflationary process or on the fiscal outlook since January 15, it is appropriate for the Reserve Bank to await them and maintain the current interest rate stance,” Rajan said while explaining the rationale behind the existing status of rates.

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