RBI policy: SLR rate axed, rates static

With the system facing cash crunch due to outgo on account of advance tax payments and busy credit season the RBI, in its credit policy review meet, announced measures to pump in Rs 48,000 crore even as it cautioned against inflation.

It said prices still remained a major concern because of rising demand and high global commodity rates.

At the same time, the Reserve Bank kept short-term lending and borrowing rates (repo and reverse repo) as well as mandatory deposit requirement for banks CRR (cash reserve ratio) unchanged.

This is aimed at prompting most banks to hold on to their interest rates.

Meanwhile, the market took the announcements with a pinch of salt with the Bombay Stock Exchange's benchmark index Sensex trading lower by over 50 points at 19,594.83 during intra-day trading.

Besides, the rate sensitive sectors like banking, realty were mixed with Bankex trading 0.47 per cent higher and Realty index at 0.03 per cent down.

The RBI measures came on a day when food inflation rose to 9.46 per cent for the week ended December four from 8.60 per cent a week ago, and the central bank also did not rule out the possibility of the rate of overall price rise going above its projections of 5.5 per cent by March-end.

Hike in petrol prices is also expected to add to inflationary pressures.

However, overall inflation has been declining persistently and stood at 7.48 per cent in November.

Enthused by 8.9 per cent growth rate for the second quarter, RBI, however, did not change its projections of 8.5 per cent economic growth this fiscal and preferred to revisit numbers at its next review on January 25, 2011.

Blaming the government's huge cash balance for aggravating liquidity situation, the central bank said it will purchase sovereign securities for Rs 48,000 crore in a month, expected to ease situation of cash-strapped system a bit.

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