its first quarter review of the annual monetary policy
for 2007-08, the RBI hiked the cash reserve ratio (CRR)
by 50 bps to 7 per cent from 6.5 per cent. It has kept
the repo, reverse repo and bank rates unchanged, leaving
the stance of the monetary policy unchanged.
RBI said the CRR would rise to 7.0 per cent from with
effect from 4 August, taking it to its highest level
since November 2001. It had last raised the CRR in April,
drain cash from the system, RBI also withdrew its cap
of Rs3,000 crore on its daily money market operations,
which it holds twice a day, a move that enables banks
to park more funds with it. The central bank said that
it was ending the second operation, held in the afternoon,
with effect from Monday 6 August.
FY08 GDP forecast has been retained at 8.5 per cent
and the credit policy has retained its medium term inflation
target at between 4 per cent and 4.5 per cent. Keeping
inflation within 5 per cent in FY08 assumes priority
according to the policy.
adversely to the hiking of the CRR, the markets, which
had opened a very strong note with nearly 150 points
gap up on Sensex on the back of strong global and strong
Q1 FY08 results, slipped before showing partial recovery.
Bank Rate has been kept unchanged at 6.0 per cent.
Repo Rate/Reverse Repo Rate
repo rate under the LAF is kept unchanged at 7.75 per
reverse repo rate under the LAF is kept unchanged at
6.0 per cent.
view of the current macroeconomic and overall monetary
and liquidity conditions, it has been decided to withdraw
the ceiling of Rs. 3,000 crore on daily reverse repo
under the LAF with effect from Monday, August 6, 2007.
The Reserve Bank, however, retains the discretion to
re-impose a ceiling as appropriate.
Reserve Bank has the flexibility to conduct repo/reverse
repo auctions at a fixed rate or at variable rates as
Reserve Bank retains the option to conduct overnight
or longer term repo/reverse repo under the LAF depending
on market conditions and other relevant factors. The
Reserve Bank will continue to use this flexibility including
the right to accept or reject tender(s) under the LAF,
wholly or partially, if deemed fit, so as to make efficient
use of the LAF in daily liquidity management.
second LAF, which was introduced from November 28, 2005
and is conducted between 3.00 p.m. and 3.45 p.m. on
a daily basis, is withdrawn with effect from Monday,
August 6, 2007.
cash reserve ratio (CRR) of scheduled banks is currently
at 6.5 per cent. On a review of the current liquidity
situation, it is considered desirable to increase the
CRR by 50 basis points to 7.0 per cent with effect from
the fortnight beginning August 4, 2007.
Mid-Term Review of the Annual Policy Statement for the
year 2007-08 will be undertaken on October 30, 2007.