Mumbai: The Reserve Bank of India has left its key lending rates and reserve requirements for banks as it released its half yearly review of the monetary policy.

On a review of the current liquidity situation, it has been decided to keep the lending and reserve rates unchanged, the RBI said in a release.

Consequently, the bank rate would remain unchanged at 6.0 per cent, the repo rate at 8.0 per cent, the cash reserve ratio at 6.5 per cent, the reverse repo rate at 6.0 per cent and the statutory liquidity ratio at 23.5 per cent.

RBI has, meanwhile, raised its inflation target at 7 per cent for FY09 against the previous ceiling of 5 per cent. The central bank also revised GDP growth target to 7.5-8.0 per cent from 8.0 per cent earlier.

The RBI has already slashed its key rates over the past two weeks, but a shift in focus from inflation targeting to growth has led to expectations of further easing of monetary policy.

The RBI's policy stance has shifted from inflation fighting to growth as the index of industrial production dropped to 1.3 per cent in August from 10 per cent a year ago and 7 per cent in the previous month.

Also, inflation rate has been easing over the past few weeks – touching 11.07 per cent in the latest review. However the falling value of the rupee against the dollar is one big worry.

The domestic currency fell to a low of 50.15 to the dollar following heavy losses in Asian and domestic stock markets, amidst increased outflows from the stock markets. 
 
Following are the highlights of the mid-term review of annual monetary policy for the year 2008-09 announced by RBI governor D Subbarao today:

• Bank rate, repo rate and reverse repo rate kept unchanged.
• The flexibility to conduct overnight repo or longer term repo, including the right to accept or reject tender(s) under the LAF, wholly or partially, retained.
• CRR kept unchanged at 6.5 per cent.
• GDP growth forecast for 2008-09 revised to a range of 7.5-8.0 per cent.
• Keeping in view the supply management measures taken by the government and the lagged demand response to the monetary policy measures taken by the Reserve Bank, it has been decided to maintain the earlier projection of inflation of 7.0 per cent by end-March 2009 for policy purposes.
• It will be the Reserve Bank's endeavour to bring down inflation to a tolerable level of below 5 per cent at the earliest, while aiming for convergence with the global average inflation of around 3.0 per cent over the medium-term.
• Moderate the rate of money supply to 17 per cent in 2008-09.

RBI said its policy stance aims at ensuring a monetary and interest rate environment that optimally balances the objectives of financial stability, price stability and well-anchored inflation expectations, and growth. The central bank said it would continue with the policy of active demand management of liquidity through appropriate use of all instruments including the CRR, open market operations (OMO), the MSS and the LAF to maintain orderly conditions in financial markets.

''In the context of the uncertain and unsettled global situation and its indirect impact on the domestic economy in general and the financial markets in particular, closely and continuously monitor the situation and respond swiftly and effectively to developments, employing both conventional and unconventional measures.''

The emphasis is on credit quality and credit delivery, in particular, for employment-intensive sectors, while pursuing financial inclusion, RBI added.