Reduces SLR and SLR-HTM ceiling by 50 bps to 22% and 24% respectively
The Reserve Bank of India (RBI) released Third Bi-Monthly Monetary Policy Statement, 2014-15. The key highlights of the policy review are as follows.* Repo rate unchanged at 8.0%;
* CRR unchanged at 4.0%
* Reduce SLR by 50 bps from 22.5% to 22.0% with effect from the fortnight beginning 09 August 2014
* Continue to provide liquidity under overnight repos at 0.25% of bank-wise NDTL and liquidity under 7-day and 14-day term repos of up to 0.75% of NDTL of the banking system.
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* Upside risks to the target of ensuring CPI inflation at or below 8% by January 2015 remain, although overall risks are more balanced than in June, made RBI to leave the policy rate unchanged.
* With some continuing uncertainty about the path of the monsoon, it would be premature to conclude that future food inflation, and its spill-over to broader inflation.
* Global economic activity has been picking up at a modest space
* Investor risk appetite has buoyed financial markets, partly drawing strength from assurances of continuing monetary policy support in industrial countries.
* Sentiment on domestic economic activity appears to be reviving
* Liquidity conditions have remained broadly stable, barring episodic tightness on account of movements in the cash balances of the Government maintained with the Reserve Bank.
* All categories of capital flows have been buoyant. Surges in capital inflows in excess of the current account financing requirement and the repayment of swaps by oil marketing companies have bolstered international reserves.
* Prospects for reinvigoration of growth have improved modestly. GDP growth forecast of 5.5% within a likely range of 5 to 6% that was set out in the April projection for 2014-15 can be sustained.
* On the other hand, if risks relating to the global recovery, the monsoon and geo-political tensions intensify, the balance of risks could tilt to the downside.
* The Reserve Bank will act as necessary to ensure sustained disinflation.
* The ceiling for banks' total holdings of SLR securities in the HTM category is reduced from 24.5% of their NDTL to 24% of NDTL with effect from 09 August 2014, to enable banks greater participation in financial markets.
* The Reserve Bank will continue to carry forward its banking sector reforms agenda.
* The fourth bi-monthly monetary policy statement is scheduled on 30 September 2014.
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