RBI leaves key rates untouched amid inflation woes

RBI governor Diruvvi SubbaraoAs expected, the Reserve Bank of India today left key policy rates unchanged for the second consecutive quarter, retaining the repo rate at 8 per cent and the cash reserve ratio at 4.5 per cent as inflation continues at worrying levels.
In its first quarter policy review for fiscal 2012, the RBI also lowered its growth projection for the current year to 6.5 per cent from the earlier projection of 7.3 per cent.

In a small concession to the lack of liquidity in the market, the central bank brought down the statutory liquidity ratio (SLR) – the minimum amount that banks must park in government bonds – by 1 per cent to 23 per cent, effective 11 August.

However, the lowering of SLR is unlikely to have much impact as the average holding of banks in government bonds is already as high as 30 per cent.

"The primary focus of monetary policy remains inflation control in order to secure a sustainable growth path over the medium-term ... lowering policy rates (now) will only aggravate inflationary impulses without necessarily stimulating growth," RBI governor Diruvvi Subbarao said in the policy review.

The RBI also raised its inflation outlook to 7 per cent from 6.5 per cent earlier, in view of the deficient monsoon rains and subdued prices of petroleum products.

Stocks markets reacted negatively to the policy and the benchmark Bombay Stock Exchange Sensex fell over 71 points in morning trade.