RBI's Annual Monetary Policy Statement for the Year 2013-14
- 3rd May 2013
III. The Policy Stance
33. The Reserve Bank began exiting from the crisis driven expansionary policy in October 2009. Between January 2010 and October 2011, the Reserve Bank cumulatively raised the CRR by 100 bps and the policy repo rate 13 times by a total of 375 bps, with the monetary policy stance biased towards containing inflation and anchoring inflation expectations.
34. In view of slowdown in growth, especially investment activity, and some moderation in inflation, the Reserve Bank paused in December 2011. It indicated that no further tightening might be required and that future actions would be towards lowering the rates. In January 2012, the Reserve Bank signaled a shift in the policy stance towards addressing increasing risks to growth by reversing the tightening cycle. The CRR was reduced cumulatively by 125 bps during January-March 2012 to prepare liquidity conditions for a front-loaded 50 bps reduction in the policy repo rate in April.
35. Through much of 2012-13, the Reserve Bank persevered with efforts to ease credit and liquidity conditions through a 100 bps reduction in the SLR in August 2012, a cumulative 75 bps reduction in the CRR and 50 bps reduction in the repo rate during September 2012-March 2013.
36. Cumulatively, during the full year 2012-13, the policy repo rate was reduced by 100 basis points, the SLR by 100 bps and the CRR by 75 basis points, supported by liquidity injections through OMOs of the order of Rs1.5 trillion. After reducing the policy repo rate by 25 bps in its Mid-Quarter Review (MQR) of March 2013, the Reserve Bank noted that in view of the policy easing already effected, the sluggish ebbing of inflation and widening CAD, the headroom for further monetary easing was quite limited.
37. Against the backdrop of global and domestic macroeconomic conditions, outlook and risks, the policy stance for 2013-14 has been guided by the following considerations:
38. First, growth has decelerated continuously and steeply, more than halving from 9.2 per cent in Q4 of 2010-11 to 4.5 per cent in Q3 of 2012-13. The Reserve Bank’s current assessment is that activity will remain subdued during the first half of this year with a modest pick-up, subject to appropriate conditions ensuing, in the second half of 2013-14.
39. Second, although headline WPI inflation has eased by March 2013 to come close to the Reserve Bank’s tolerance threshold, it is important to note that food price pressures persist and supply constraints are endemic, which could lead to a generalisation of inflation and strains on the balance of payments.
40. Against this backdrop, the stance of monetary policy is intended to:
• continue to address the accentuated risks to growth;
• guard against the risks of inflation pressures re-emerging and adversely impacting inflation expectations, even as corrections in administered prices release suppressed inflation; and
• appropriately manage liquidity to ensure adequate credit flow to the productive sectors of the economy.
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