RBI Q2 monetary policy review 2012-13: Key highlights

NEW DELHI: The Reserve Bank of India (RBI) on Tuesday cut the cash reserve ratio (CRR) by 25 bps but kept key policy rates unchanged.

Here is a look at the key highlights of the RBI's Second Quarter Review of Monetary Policy for 2012-13.

> RBI cuts CRR by 25 bps to 4.25% from November, move to inject Rs 17500 crore into the banking system

> CRR cut intended to pre-empt prospective liquidity crunch

> CRR cut to enable turnaround in credit growth and policy measures to reinforce government’s fiscal measures

> Reasonable likelihood of further policy easing in Q4, policy guidance to depend on evolving growth-inflation dynamic

> While March 2013 WPI inflation forecast has been raised to 7.5% from 7%, FY13 GDP growth forecast has been cut to 5.8% from 6.5%

> FY13 credit growth projection has been cut to 16% from 17%, FY13 deposit growth projection cut to 15% from 16%

> Global outlook: Downside risks to global growth prospects have risen, RBI sees serious spillover risk of crisis in advanced economies

> Domestic Growth: Domestic growth risks worsened by halted investment demand

> Agri-outlook remains resilient, overall economic activity expected to be subdued

> Govt’s recent sentiment-building announcements need to translate into action

> Fiscal and current account deficits will continue to pose significant risks

> Current global environment poses challenges to financing large current a/c deficit

Inflation Outlook:

> Inflation will rise somewhat in Q3 before beginning to ease in Q4

> Impact of suppressed inflation in the open as govt corrects under-pricing in several products

> Persistent supply constraints may be aggravated as demand increases

> Appreciating rupee will also help contain inflation by reducing rupee-import costs