RBI's Annual Monetary Policy Statement for the Year 2012-13 -17th April 2012
III. The Policy Stance
40. After raising the policy rate by 375 basis points during March 2010- October 2011 to contain inflation and anchor inflation expectations, the Reserve Bank paused in its mid-quarter review (MQR) of December 2011. Subsequent growth-inflation dynamics prompted the Reserve Bank to indicate that no further tightening was required and that future actions would be towards lowering the rates.
41. Against the backdrop of global and domestic macroeconomic conditions, outlook and risks, the policy stance for 2012-13 has been guided by the two major considerations.
42. First, growth decelerated significantly to 6.1 per cent in Q3 of 2011-12, though it is expected to have recovered moderately in Q4. Based on the current assessment, the economy is clearly operating below its post-crisis trend.
43. Second, as earlier projected, headline WPI inflation as well as non-food manufactured products inflation moderated significantly by March 2012. During December-January, inflation softened on account of a decline in food prices, however, in the following two months, inflation softening was driven largely by moderation in the core components reflecting a slowdown in demand.
44. Against this backdrop, the stance of monetary policy is intended to:
Adjust policy rates to levels consistent with the current growth moderation.
Guard against risks of demand-led inflationary pressures re-emerging.
Provide a greater liquidity cushion to the financial system.
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