RBI maintains status quo, reduces SLR by 50 bps-Second Bi-Monthly Monetary Policy Statement, 2014-15

Reserve Bank of India (RBI) in its Second Bi-Monthly Monetary Policy Statement, 2014-15 decided to:

keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 8.0 per cent;

keep the cash reserve ratio (CRR) of scheduled banks unchanged at 4.0 per cent of net demand and time liabilities (NDTL);

reduce the statutory liquidity ratio (SLR) of scheduled commercial banks by 50 basis points from 23.0 per cent to 22.5 per cent of their NDTL with effect from the fortnight beginning June 14, 2014;

reduce the liquidity provided under the export credit refinance (ECR) facility from 50 per cent of eligible export credit outstanding to 32 per cent with immediate effect;

introduce a special term repo facility of 0.25 per cent of NDTL to compensate fully for the reduction in access to liquidity under the ECR with immediate effect; and

continue to provide liquidity under 7-day and 14-day term repos of up to 0.75 per cent of NDTL of the banking system.

Consequently, the reverse repo rate under the LAF will remain unchanged at 7.0 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 9.0 per cent.

the eligibility limit for foreign exchange remittances under the Liberalised Remittance Scheme (LRS) enhanced to US$ 125,000 without end use restrictions except for prohibited foreign exchange transactions such as margin trading, lottery and the like.

it has been decided to allow all residents and non-residents except citizens of Pakistan and Bangladesh to take out Indian currency notes up to Rs 25,000 while leaving the country.

The RBI stated that risks to central forecast of 8% CPI by January 2015 remain "broadly balanced". It said "at this juncture, it is appropriate to leave the policy rate unchanged, and to allow the disinflationary effects of rate increases undertaken during September 2013-January 2014 to mitigate inflationary pressures in the economy and if disinflation, adjusting for base effects, is faster than currently anticipated, it will provide headroom for an easing of the policy stance".

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