RBI in a surprise move cut the Cash Reserve Ratio (CRR) by 50bps from 6% to 5.5%. The CRR has been on hold since Feb-10. The CRR cut will inject primary liquidity to the tune of Rs320bn. However, taking into account elevated levels of nonfood product and ‘suppressed’ fuel inflation, the RBI has left key policy rates unchanged. (Repo at 8.5%; Reverse Repo at 7.5%).
The RBI has lowered its FY12 GDP estimate from 7.6% to 7% and said that the deceleration is primarily due to a slowdown in investments, where revival is contingent on domestic policy measures. If this does not pick up, growth could trend lower; further aggravating inflationary pressures.
While maintaining its 7% inflation estimate for Mar12, the RBI continues to express concern on (1) Non-food manufactured product inflation which is dependent on the interplay between commodity prices and the currency
