In a surprise move, the Reserve Bank Tuesday cut the Statutory Liquidity Ratio (deposits banks must keep with the RBI in government bonds) by another 0.5 per cent (after the June reduction) to 22 per cent, but kept the repo rate (at which the RBI lends money to banks) and cash reserve ratio (the portion of deposits banks need to keep with it) unchanged. RBI governor Raghuram Rajan said this would give banks more liquidity to provide credit for productive purposes when the economy picks up. To justify keeping the rates intact, the governor repeatedly cautioned that there are still upside risks both global and domestic, in crude oil prices and the monsoon respectively, to maintain the consumer price index at or below eight per cent by January 2015. Borrowers and homeowners cannot expect lower EMIs as the SLR cut was not meant for banks to give cheaper loans but to give them more flexibility in lending. What became evident at Dr Rajan’s media interaction after his bi-monthly monetary policy statement was that he and the government are in sync on tackling inflation. He observed that they were on the same page and it was a joint government-RBI effort to improve macro indicators like the fiscal deficit and current account deficit. There was a big difference since the last government, he said, as India was not a problem any more and that perception no longer existed.
Political stability, he noted, was worth a tremendous amount where global perceptions were concerned.
