The Reserve Bank of India (RBI) will not hold interest rates high longer than necessary, and will have room to cut rates if disflation continues, RBI Governor Raghuram Rajan said here Tuesday.
The apex bank in its monetary policy statement kept the repo rate unchanged at 8 percent. The reverse repo rate was kept unchanged at 7 percent and cash reserve ratio (CRR) was maintained at 4 percent.
The statutory liquidity ratio (SLR), the mandatory amount of bonds lenders must keep with the RBI, was cut by 0.5 percent to 22.0 percent of their net demand and time liabilities (NDTL) with effect from August 9, 2014.
On the SLR cut, Rajan told reporters at a media briefing after the third bi-monthly monetary policy review for fiscal 2014-15: "It is an obligation that put constraints on the banalne sheet of the banks. And being in the new economy we have to think of bringing it down. The SLR cut was not intended to make loans cheaper today. It was to give banks more flexibility on its balance sheet going forward as some of the demands pick up."
He said: "We are trying to ensure that supplyside is encouraged. Its a fine balance that we are trying to draw and as often stated that we don't have too many tools. The interest tool is a very blunt tool, we are trying to use some of the other tool."
