RBI turns its attention to impact of global slump
16 Dec 2011
It now seems to have dawned on Reserve Bank of India (RBI) that past monetary tightening and policy uncertainties have had a negative impact on the domestic economy.
The RBI has decided, at least for the short-term, to discontinue its interventionist policy amidst a steady decline in industrial production and an easing of inflationary pressures and kept all policy rates unchanged at the existing levels.
Consequently, at its mid quarter monetary policy review, RBI kept the cash reserve ratio (CRR) unchanged at 6 per cent. The repo rate and the reserve repo rates under the liquidity adjustment facility (LAF) also have been kept unchanged at 8.5 per cent and 7.5 per cent, respectively (See: RBI leaves policy rates unchanged; hints at cuts).
RBI said the decision has been prompted by a worsening global economic outlook since the last quarterly review of monetary policy on 25 October 2011.
The recent European Union (EU) summit has failed to address the problem of financial market turbulence; instead it has only helped to add to market worries, RBI said, adding that both factors pose threats to emerging market economies (EMEs), including India.
These developments, however, have not affected crude oil prices, which remain buoyant. This also in part explains the deceleration in domestic economic growth in India, the central bank says.
