Monetary policy: RBI leaves key rates unchanged; surprises with SLR cut

The RBI has maintained status quo and left its key policy rates unchanged.

The repo rate remains at 8 per cent. The RBI had given a hint of this even yesterday while releasing its review of macroeconomic and monetary developments. Practically throwing up its hands, it had laid the onus on the Central Government to do the needful on the fiscal side.

It had noted that "monetary policy space needs to be created through fiscal adjustment and structural measures to improve supply conditions and boost the investment climate, so the revival is supported in a non-inflationary manner".

The RBI, however, threw in a surprise cut in the Statutory Liquidity Ratio (SLR) of scheduled commercial banks from 24.0 per cent to 23.0 per cent of their net demand and time liabilities with effect from the fortnight beginning August 11, 2012.

The policy actions are expected to anchor inflation expectations and maintain liquidity to facilitate smooth flow of credit to productive sectors to support growth, the central bank said.

GDP growth outlook

The RBI has cut its GDP growth forecasts for this fiscal to 6.5 per cent from 7.3 per cent given in the April policy. It said that the earlier forecast was based on the expectation of a normal monsoon and improvement in industrial activity. Both these expectations did not hold, it conceded.

Simultaneously, the RBI has also revised upwards its baseline projections for WPI inflation. This has been raised from 6.5 per cent to 7 per cent.