Sixth RBI Bi monthly Policy Review – February 2015: The Reserve Bank of India (RBI) Tuesday decided to keep key interest rates unchanged in its sixth bi-monthly policy review. In its sixth bi-monthly Monetary Policy review, the Reserve Bank of India kept policy rates unchanged after easing monetary policy just three weeks ago, suggesting government’s  annual budget at the end of this month may hold the key to future action. However it announced a cut in SLR by 50 bps from 22 percent to 21.5 percent of their NDTL with effect from February 7, 2015.

According to bankers and economists, there is room for further rate cut by RBI as retail and wholesale inflation rates have remained benign. The concerns on fiscal deficit front have also eased, especially after the government last week garnered a record amount of Rs 22,577 crore through disinvestment of 10 per cent stake in Coal India Ltd.

Sixth RBI Bi monthly Policy Review:

On the basis of an assessment of the current and evolving macroeconomic situation, it has been decided to:

• keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 7.75 per cent;

• keep the cash reserve ratio (CRR) of scheduled banks unchanged at 4.0 per cent of net demand and time liabilities (NDTL);

• reduce the statutory liquidity ratio (SLR) of scheduled commercial banks by 50 basis points from 22.0 per cent to 21.5 per cent of their NDTL with effect from the fortnight beginning February 7, 2015;

• replace the export credit refinance (ECR) facility with the provision of system level liquidity with effect from February 7, 2015;

• continue to provide liquidity under overnight repos of 0.25 per cent of bank-wise NDTL at the LAF repo rate and liquidity under 7-day and 14-day term repos of up to 0.75 per cent of NDTL of the banking system through auctions; and

• continue with daily variable rate term repo and reverse repo auctions to smooth liquidity.

Consequently, the reverse repo rate under the LAF will remain unchanged at 6.75 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 8.75 per cent.

Key Points within the Review:

• 72 purposes for Small Finance Banks and 41 purposes for Payments Banks acquired.
• FIIs can spend money on India corp bond with 3-yr maturity.
• RBI raises cap on foreign exchange underneath LRS to $250,000 per individual.
• Inflation more likely to be round goal degree of 6% by January 2016.
• Baseline projection for 2014 GDP progress retained at 5.5%.
• Real GDP progress in 2015-16 anticipated to rise to 6.5%

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