The Reserve Bank of India on Tuesday left its key policy rate unchanged in its second quarter (July-September) monetary policy. However, it cut cash reserve ratio by 25 basis points to 4.25%. CRR is the portion of deposits banks are mandated to keep with the RBI.
With the CRR cut, the central bank will infuse Rs 17,500 crore liquidity into the system. Repo, the policy rate at which banks borrow money from the regulator remains at 8% while reverse repo, used to lend money to RBI is at 7%.
"The reduction in the CRR is intended to pre-empt a prospective tightening of liquidity conditions, thereby keeping liquidity comfortable to support growth," D. Subbarao, the governor of RBI said in a statement.
"It anticipates the projected inflation trajectory which indicates a rise in inflation before easing in the last quarter. While risks to this trajectory remain, the baseline scenario suggests a reasonable likelihood of further policy easing in the fourth quarter of 2012-13. The above policy guidance will, however, be conditioned by the evolving growth-inflation dynamic."
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