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RBI keeps interest rates steady but cuts SLR

The central bank acknowledged the downside risks to growth both from a deficient monsoon and continuing global financial instability.

Mumbai | Published: July 31, 2012 9:56:21 pm

Underlining that inflation-control remains its main goal despite slowing growth,the Reserve Bank of India on Tuesday kept key interest rates unchanged but surprised the markets by trimming the statutory liquidity ratio (SLR) to 23 per cent from 24.

The RBI cut the SLR,the portion of deposits banks park in government bonds,citing the need to ease liquidity conditions for policy implementation and adequate credit flow to productive sectors of the economy.

The central bank acknowledged the downside risks to growth both from a deficient monsoon and continuing global financial instability,but maintained that inflation still remains the dominant concern with additional risks to food inflation emerging from the poor monsoon.

Disappointing borrowers,the RBI retained the repo rate — the rate at which banks borrow from the RBI — at 8 per cent and the cash reserve ratio — the portion of deposits parked by banks with the RBI — at 4.75 per cent. In the wake of the recent deterioration in the macro-economic scenario,it has also lowered the growth estimate for 2012-13 from 7.3 per cent to 6.5 per cent and raised the inflation estimate to 7 per cent from 6.5 per cent.

“The primary focus of monetary policy remains inflation-control in order to secure a sustainable growth path over the medium-term. While monetary actions over the past two years may have contributed to the growth slowdown — an unavoidable consequence — several other factors have played a significant role,”  RBI Governor D Subbarao said as he unveiled the first quarter review of the monetary policy.

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