|Reserve Bank of India on Tuesday announced that the key rates would remain unchanged. However, the monetary and banking regulator surprised everyone by a 1% cut in statutory liquidity ratio (SLR).
The central bank had previously kept the policy rates unchanged at the mid-quarter review in June. Repo rate, the rate at which RBI lends to banks remained at 8%; while reverse repo rate, the rate at which banks keep short term deposits with RBI was 7%.
SLR is the minimum amount of the total deposits that the banks need to invest in liquid assets like gold, and approved securities like government securities (t-bills, bonds,etc.). It was brought down a percent from 24% to 23%. This would be effective from August 11, 2012.
RBI once again emphasized on the role of government to bring about fiscal adjustments and stated, "monetary policy space needs to be created through fiscal adjustment and structural measures to improve supply conditions and boost the investment climate, so the revival is supported in a non-inflationary manner".
However small it may seem, experts suggest that a cut in SLR would create liquidity worth Rs. 62,000 crore. This would enable banks to advance credit to productive sectors at lower cost, and promote growth, which hit a 29 quarter low recently.