Despite the slowdown in the economy and decline in wholesale price index (WPI)-based inflation, Reserve Bank of India (RBI) refrained from reducing policy repo rate in its first quarter review of monetary policy on July 30.
The central bank kept key policy rate unchanged at 7.25 per cent and the Cash Reserve Ratio (CRR) at 4 per cent because of the sharp depreciation in rupee exchange rate against dollar.
RBI Governor D Subbarao said the central bank was ready to use all available instruments and measures at its command to respond proactively and swiftly to any adverse development.
Repo rate is the rate at which banks borrow funds from the central bank, and CRR is the portion of the total deposits banks are mandated to keep with the central bank.
India is at present caught in a classic Â‘impossible trinityÂ’ Â– trilemma, whereby Â“we are having to forfeit some monetary policy discretion to address external sector concerns,Â” said Subbarao.
It may be recalled that recently the RBI introduced some liquidity tightening measures to contain undue volatility in the foreign exchange market.
Leave a Reply
You must be logged in to post a comment.