RBI's Third Quarter Review of Monetary Policy Statement 2012-13 - Announced on 29th January 2013 by Dr. D. Subbarao, Governor, Reserve Bank of India
It has been decided to: reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 8.0 per cent to 7.75 per cent with immediate effect.
It has been decided to reduce the cash reserve ratio (CRR) of scheduled banks by 25 basis points from 4.25 per cent to 4.0 per cent of their net demand and time liabilities (NDTL) effective the fortnight beginning February 9, 2013. As a result of this reduction in the CRR, around `180 billion of primary liquidity will be injected into the banking system.
..... Read full text of Monetary Measures
Since the Second Quarter Review (SQR) of Monetary Policy in October 2012, headwinds holding back the global economy have begun to abate gradually, although sluggish conditions prevail. In the US, activity gathered momentum in Q3 of 2012 but this is unlikely to have been sustained in Q4. While a political consensus to avert the ‘fiscal cliff’ has calmed financial markets, how the debt ceiling is managed will be crucial in shaping market sentiment on the way forward. The euro area economy is threatened by continuing contraction, notwithstanding the liquidity firewall of the European Central Bank (ECB) and the commitment to act collectively to backstop the union. Overall, however, risks of the sovereign debt crisis disrupting the global financial system have ebbed. Japan has re-entered recession. Among the emerging and developing economies (EDEs), a pick-up in the pace of growth in China is likely. A combination of a slump in external demand and domestic structural bottlenecks has slowed down growth in most other EDEs. Furthermore, inflationary pressures persist in some of them. Overall, global economic prospects have improved modestly since the SQR even as significant risks remain.
2. Domestically, growth remains sluggish, notwithstanding some tentative signs of the slowdown beginning to level off. Industrial activity weakened, reflecting subdued manufacturing, deceleration in electricity generation and contraction in mining activity. While the series of policy measures announced by the Government has boosted market sentiment, the investment outlook is still lacklustre, especially in terms of demand for new projects. Consumption demand too is slowing. As regards prospects for agriculture, whether the rabi output will offset the shortfall in the kharif output is as yet unclear. Lead indicators of service sector activity point to an expansion in the months ahead, albeit constrained by the drag imposed by depressed global demand conditions.
3. Headline wholesale price inflation, led by non-food manufactured products inflation, has softened through Q3, providing some relief from the persistence that dominated the first half of the year. On the other hand, food inflation has edged up, pushing up consumer price inflation in turn. Lead indicators such as weaker pricing power of corporates, excess capacity in some sectors, the possibility of international commodity prices stabilising as assessed by the International Monetary Fund (IMF) and momentum measures suggest that inflationary pressures have peaked. However, further moderation in domestic inflation going into 2013-14 is likely to be muted as the correction of under-pricing of administered items is still incomplete and food inflation remains elevated. Accordingly, the setting of monetary policy has to remain sensitive to conflicting pressures and attendant risks.
4. This policy review is accordingly set in the context of a slowly improving global environment and a tipping point in the balance of risks between growth and inflation on the domestic front. It should be read and understood together with the detailed review in Macroeconomic and Monetary Developments released yesterday by the Reserve Bank.
5. This Statement is organised in four sections: Section I provides an overview of global and domestic macroeconomic developments; Section II sets out the outlook and projections for growth, inflation and monetary aggregates; Section III explains the stance of monetary policy; and Section IV specifies the monetary measures.
I. The State of the Economy Read full text
II. Outlook and Projections Read full text
III. The Policy Stance Read full text
IV. Monetary Measures Read full text
Mid-Quarter Review of Monetary Policy 2012-13
45. The next mid-quarter review of Monetary Policy for 2012-13 will be announced through a press release on Tuesday, March 19, 2013.
Monetary Policy 2013-14
46. The Monetary Policy for 2013-14 is scheduled on Friday, May 3, 2013.
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