RBI keeps bank rate, repo and reverse repo rate unchanged

Releasing the First Quarter Review of Annual Statement on Monetary Policy for the Year 2007-08, Reserve Bank of India Governor Y V Reddy today announced that Bank rate, reverse repo rate and repo rate will remain unchanged.

However, the Cash Reserve Ratio (CRR) has been increased by 50 basis points to seven per cent with effect from the fortnight beginning August 4.

The quarterly review has projected a Gross Domestic Product (GDP) growth of 8.5 per cent, barring domestic or external shocks.

Commenting on inflation, Reddy said, "Holding inflation within five per cent in 2007-08 assumes priority in the policy hierarchy, while reinforcing the medium-term objective to condition policy and perceptions to reduce inflation to 4.0-4.5 per cent on a sustained basis."

Inflation, measured by variations in the wholesale price index (WPI) on a year-on-year basis, declined from 5.9 per cent at end-March 2007 to 4.4 per cent as on July 14, he added.

The review stated that while non-food credit growth has decelerated, the acceleration in money supply and reserve money warrants an appropriate response.

On recent ups and downs in the stock markets, the review said: "Recent financial market developments in the country and potential uncertainties in global markets warrant a higher priority in the policy hierarchy for managing appropriate liquidity conditions at the current juncture."

Real GDP growth during the quarter January-March 2007 is placed at 9.1 per cent as against 10.0 per cent in the corresponding quarter a year ago and real GDP growth for the year 2006-07 is revised upwards from 9.2 per cent to 9.4 per cent, a RBI release said.

The review further added that the year-on-year increase in aggregate deposits of scheduled commercial banks (SCBs) was at 24.4 per cent that was at 20.9 per cent a year ago.

"Banks had generally increased their deposit rates by about 25-50 basis points across various maturities between March and June, but reduced them during July, especially in the shorter maturities," the release said.

The majority of public sector banks (PSBs) adjusted their deposit rates upwards by 10-25 basis points on maturities above one year, particularly at the longer end, it added.