As expected by many analysts, DV Subbarao, RBI’s governor, has kept the key policy interest rates unchanged, while the CRR has been cut by 25 basis points.
In an announcement after the monetary policy review, the governor said that the CRR will be cut by 25 basis points, taking the current CRR rate to 4.50%.
“The government’s recent actions have paved the way for a more favourable growth-inflation dynamic by initiating a shift in expenditure away from consumption (subsidies) and towards investment (including through FDI),” the RBI wrote in its policy statement.
“However, in the current situation, persistent inflationary pressures alongside risks emerging from twin deficits — current account deficit and fiscal deficit — constrain a stronger response of monetary policy to growth risks,” the RBI said.
The cut in CRR is an indication that the Central Bank is worried about the inflationary implications of the recent fuel price hike. This 25-basis point cut in the CRR is expected to release around Rs 17,000 crore into the system.
The rupee rallied today to 4-month high by gaining a hefty 51 paise at 53.79 against the dollar. Weakness of dollar in the overseas market also boosted the rupee value against the dollar.
Equity Markets shed off gains
Markets have however shed off the early gains. The Sensex and the Nifty have both become flat in trade. Earlier during the morning session, both the indices had recorded a 1% gain, taking them to 2012’s top levels.
Earlier market update at 9:45 AM
Markets have extended the rally to start the week on a very positive note. The Sensex has gained more than 250 points during the opening. However it has cooled off to 18647, up by 183 points or 1% high. The Nifty has rose by 57 points to trade at 5633, up by 1%.
The rally has come in the backdrop of the recent measures by the Government to give a booster to the economy, including the fuel price hikes, allowing the FDI in certain sectors and disinvestment in some of the public companies.
Added to this, the RBI is expected to come out with its policies, after its monetary policy review slated to happen today. Banking stocks have all rallied in anticipation of the measures from RBI.