RBI Leaves Key Rates Unchanged to Control Inflation

The Reserve Bank of India leaves key rates unchanged retaining repo (lending) rate at 8% and CRR at 4.75% despite demands from the industry to cut interest rates to spur economic growth. For the second consecutive time, it left key rates unchanged to control inflation. However, it brought down the Statutory Liquidity Ratio(SLR) by 1% to 23% and this will be effective from August 11, 2012.

The repo rate is the lending rate at which banks borrow money from RBI, the CRR is the amount of deposits banks keep with RBI in cash and the SLR is the amount of deposits bank keep in government bonds.

According to RBI, lowering policy rates in current circumstances will only aggravate inflationary impulses without stimulating growth. So, it refused to cut lending rates despite demand. In its earlier mid-quarter review on June 16, it kept the policy rates unchanged to combat high prices.

This decision on policy rates is expected to anchor inflation and maintain liquidity to facilitate smooth flow of credit to productive sectors to support the economic growth. According to RBI, wholesale price index inflation remained above 7% in June.

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