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In line with the above, to continue with the present stance of preference for a soft and flexible rate environment within the framework of macroeconomic stability.
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| Excerpts from the stance statement: |
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| MONETARY MEASURES |
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Bank Rate
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| In the annual policy Statement of April 2003, the Bank Rate was reduced from 6.25 per cent to 6.0 per cent with effect from the close of business on April 29, 2003. |
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| It was also indicated that unless the domestic and international circumstances change, the policy bias in regard to the Bank Rate is to keep it stable until the mid-term Review of 2003-04. |
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| On a review of the macroeconomic developments, it is considered desirable to leave the Bank Rate unchanged (at 6.0 per cent) at present. |
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Cash Reserve Ratio
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| In the annual policy Statement of April 2003, the cash reserve ratio (CRR) was reduced from 4.75 per cent to 4.50 per cent effective fortnight beginning June 14, 2003. |
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| While the Reserve Bank continues to pursue its medium-term objective of reducing the CRR to the statutory minimum level of 3.0 per cent, on a review of the current liquidity situation, it is felt desirable to keep the present level of CRR (4.50 per cent) unchanged. |
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Review of Liquidity Adjustment Facility
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| Pursuant to the recommendations of the Narasimham Committee on Banking Sector Reforms (1998), the liquidity adjustment facility (LAF) was operationalised on June 5, 2000 following its announcement in the annual policy Statement of April 2000. |
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| It was envisaged at that time that the LAF would help the short-term money market interest rates to move within a corridor and impart stability, facilitating emergence of a short-term rupee yield curve. It was also indicated therein that the LAF would be reviewed in the light of actual experience. |
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| Keeping in view subsequent developments in the financial market as also in technology, an Internal Group reviewed the operations of LAF in a cross-country perspective. |
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| The draft Report of the Internal Group was discussed in the Technical Advisory Committee on Money and Government Securities Markets (TAC) recently and has been revised in the light of discussions. |
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In view of the fact that LAF has emerged as a monetary policy instrument of RBI for modulating system liquidity, the
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