Highlights of Monetary Policy Statement for 2012 - 13

Dr. D. Subbarao in statement on the Monetary Policy for 2012-12,  indicates the tough stand RBI has taken on number of fronts in last three years or so.    Although, after a gap of three years, Reserve Bank Governor D Subbarao today (17/04/2012)  slashed short term lending rate by 0.50 per cent to 8 per cent, by reducing the repo rate, yet it signaled that there will be no further cuts if inflation continued its ugly head.   Some of the major highlights of the Monetary Policy statement are as follows:-

(A) POLICY MEASURES:

* Repo Rate cut by 50 bps to 8.00 percent;

* Reverse repo rate adjusted 7.00 percent

* Bank Rate and MSF adjusted to 9.00 percent (The borrowing limit of banks under marginal standing facility has been increased to 2 percent from 1 percent)

* Cash reserve ratio unchanged at 4.75% . Similarly SLR remains unchanged at 24%

(B) POLICY STANCE:

* Says modest growth slowdown, upside risks to inflation limit space for further reduction in policy rates

* Policy stance aims to provide greater liquidity cushion to financial system

* Liquidity moving towards comfort zone, proactive steps will be taken to restore to comfort zone if needed

(C ) FORECASTS :

* RBI has pegged the GDP growth rate for 2012-13 at 7.3 per cent. It is expected to be 6.9 per cent in 2011-12.

* Dr. Subbarao, ruled out further reduction in policy rate in the immediate future citing persistent upside risks to inflation and possible fiscal slippages driven by higher oil subsidies.  It expects the inflation to be around 6.5 per cent by March 2013.

* Money supply growth projected at 15 percent, credit growth at 17 percent and deposits at 16 percent in 2012-13

(D) ECONOMY

* Says current account deficit level unsustainable

* Financing of current account deficit will continue to pose a major challenge

* Risk of pass-through of administered prices into inflation limited on reduced corporate pricing power

* Non-food manufactured products inflation expected to remain contained