The Reserve Bank of India has finally declared its Mid Quarter Monetary Policy Review today i.e. on 16th December 2010.
The RBI has made the decision of retaining repo rate at about 6.25% and reverse repo rate at 5.25% under LAF or the liquidity adjustment facility.
SLR or the statutory liquidity ratio is slashed down to 24% of the SCBs (scheduled commercial banks).
The ratio has been dropped from 25 percent. The SLR ratio will be effective from 18th December 2010.
WHAT IS SLR ?
Statutory Liquidity Ratio is the amount of liquid assets, such as cash, precious metals or other short-term securities, that a financial institution must maintain in its reserves. The statutory liquidity ratio is a term most commonly used in India
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== Objective ==’The objectives of SLR are:# To restrict the expansion of bank credit.
- To augment the investment of the banks in Government securities.
- To ensure solvency of banks. A reduction of SLR rates looks eminent to support the credit growth in India.
As expected, the central bank left the repo rate , at which it lends to banks, unchanged at 6.25 percent and also kept the reverse repo rate , at which it absorbs excess cash, on hold at 5.25 percent. The RBI left the cash reserve ratio (CRR) , or the portion of deposits banks need to set aside as cash with the central bank, unchanged at 6 percent.
Indian oil retailers raised petrol prices by 5.6 percent this week and the government is expected to lift diesel prices soon by roughly 2 rupees a litre, moves that together could lift WPI inflation by 30 basis points and have a knock-on effect of the same magnitude as costs are passed along.
