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Full Text of 2nd Quarter Review of Monetary Policy 2011-12 click here



Second Quarter Review of the Monetary Policy for 2011-12
-Announced on the 25th October 2011



Part A. Monetary Policy

IV. Monetary Measures

50. On the basis of current assessment and in line with the policy stance outlined in Section III, the Reserve Bank announces the following policy measures:

Repo Rate

51. It has been decided to

increase the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 8.25 per cent to 8.5 per cent with immediate effect. Reverse Repo Rate

52. The reverse repo rate under the LAF, determined with a spread of 100 basis points below the repo rate, automatically adjusts to 7.5 per cent with immediate effect.

Marginal Standing Facility (MSF) Rate

53. The Marginal Standing Facility (MSF) rate, determined with a spread of 100 basis points above the repo rate, stands recalibrated at 9.5 per cent with immediate effect.

Bank Rate

54. The Bank Rate has been retained at 6.0 per cent.

Cash Reserve Ratio

55. The cash reserve ratio (CRR) of scheduled banks has been retained at 6.0 per cent of their net demand and time liabilities (NDTL).



Guidance

56. The projected inflation trajectory indicates that the inflation rate will begin falling in December 2011 (January 2012 release) and then continue down a steady path to 7 per cent by March 2012. It is expected to moderate further in the first half of 2012-13. This reflects a combination of commodity price movements and the cumulative impact of monetary tightening. Further, moderating inflation rates are likely to impact expectations favourably. These expected outcomes provide some room for monetary policy to address growth risks in the short run. With this in mind, notwithstanding current rates of inflation persisting till November (December release), the likelihood of a rate action in the December mid-quarter review is relatively low. Beyond that, if the inflation trajectory conforms to projections, further rate hikes may not be warranted. However, as always, actions will depend on evolving macroeconomic conditions.

57. It must be emphasised, however, that several factors structural imbalances in agriculture, infrastructure capacity bottlenecks, distorted administered prices of several key commodities and the pace of fiscal consolidation combine to keep medium-term inflation risks in the economy high. These risks can only be mitigated by concerted policy actions on several fronts. In the absence of progress on these, over the medium term, the monetary policy stance will have to take into account the risks of inflation surging in response to even a moderate growth recovery.



Expected Outcomes

58. These actions and the guidance that is given are expected to:

Continue to anchor medium-term inflation expectations on the basis of a credible commitment to low and stable inflation.

Reinforce the emerging trajectory of inflation, which is expected to begin to decline in December 2011.

Contribute to stimulating investment activity.

Mid-Quarter Review of Monetary Policy 2011-12

59. The next mid-quarter review of Monetary Policy for 2011-12 will be announced through a press release on December 16, 2011.

Third Quarter Review of Monetary Policy 2011-12

60. The Third Quarter Review of Monetary Policy for 2011-12 is scheduled for Tuesday, January 24, 2012.


Second Quarter Review of Monetary Policy 2011-2012... click here

Highlights of 1st Quarter Review of Monetary Policy 2011-2012... click here

Macroeconomic & Monetary developments: Second Quarter Review 2011-12... click here

RBI CREDIT AND MONETARY POLICIES (1999-2012)... click here

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