Thursday, December 16, 2010

Mid-Quarter Monetary Policy Review: December 2010

Monetary Measures
It has been decided to:
  • retain the repo rate at 6.25 per cent and the reverse repo rate at 5.25 per cent under the Reserve Bank's liquidity adjustment facility (LAF);
  • retain the cash reserve ratio (CRR) at 6.0 per cent of net demand and time liabilities (NDTL) of scheduled banks.
Liquidity Measures
It has been decided to:
  • Firstly, reduce the statutory liquidity ratio (SLR) of scheduled commercial banks (SCBs) from 25 per cent of their NDTL to 24 per cent with effect from December 18, 2010;
  • Secondly, conduct open market operation (OMO) auctions for purchase of government securities for an aggregate amount of 48,000 crore in the next one month, the schedule for which is being issued separately.
The above two measures are expected to inject liquidity on an enduring basis of the order of ` 48,000 crore.

Given the permanent reduction in the SLR by one per cent of NDTL, the additional liquidity support under the LAF announced by the Reserve Bank on November 29, 2010 will now be available up to the extent of 1.0 per cent (instead of 2.0 per cent) of the NDTL of SCBs from December 18, 2010 to January 28, 2011.

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