The RBI in its quarterly review has left the Repo, Reverse Repo and CRR rates unchanged surprising the market expectations of smaller cuts.
While there were some expectations that the apex bank would further loosen its monetary policy in response to faster-than-expected pace of decline in inflation, RBI feels that there is enough monetary currents in the system and that some of the measures taken in last couple of months will show impact in coming time.
The apex bank noted that the liquidity situation had improved significantly in the post-credit crunch period of September-October following several measures taken by it. In particular the overnight call money rate, which generally hovered above the repo rate during September-October 2008, had softened considerably and moved towards the lower bound of the liquidity adjustment facility (LAF) corridor since early November 2008.
Through monetary easing at various points of time in the last few months, the bank has released Rs 3,88,045 crore into the market, including the cash reserve ratio cuts and other facilities forwarded in wake of monetary crunch in early part of the fiscal. Further, y-o-y growth in non-food bank credit stood at 23.9% as on January 2, 2009 higher than that of 22% as on January 4, 2008. Increase in total flow of resources from the banking sector to the commercial sector including non-food credit and investments in various securities issued by companies was also higher at 23.4% as compared with 21.7%.
Highlighting these facts, the bank mentioned that there was adequate liquidity currently to meet the required credit growth consistent with the overall projection of economic growth. As a result RBI kept its keep policy rates including repo and reverse repo and reserve rates like CRR unchanged.