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| RBI tightens grip on short-term |
| Dr. Y. V. Reddy, Governor, Reserve Bank of India, announcing the third quarter review of monetary policy for 2006-07 in Mumbai
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| INDIA
, 1-February-2007
2:40:3 AM |
| The Reserve Bank of India on Wednesday signalled its determination to rein in spiraling prices by making short-term lending to banks by the apex bank dearer by 25 basis points. It also imposed a lower ceiling on interest rate payable on non-resident deposits and restricted the loans against such deposits to Rs. 20 lakhs, in an effort to prevent circulation of funds for speculative purposes.
Taking note of the fact that inflation had exceeded the target of 5-5.5 per cent that it had set itself as a result of a variety of factors, both domestic and international, the RBI tightened provisioning for bank exposures to the capital market and real estate (as distinct from lending for individual housing) in a bid to curtail demand.
The RBI Governor, Y. V. Reddy, in his customary media conference on the occasion of the third quarter review of the annual monetary policy statement, said tightening of the monetary policy to reduce inflation would not hamper the high levels of economic growth (8.5 to 9 per cent) achieved this year, and on the contrary would help maintain the growth in the face of demand pressures and rising prices of commodities - both agricultural and industrial.
Even while keeping the bank rate, the reverse repo rate (the rate at which banks park their short-term funds with the RBI), the CRR and the SLR unchanged, the RBI Governor made it clear that the bank would be prepared to wield any instrument at its command in pursuit of its goal of ensuring growth with stability. It would also act "swiftly" as warranted by circumstances, he said.
The RBI raised the short-term rate by increasing the Repo rate (the rate at which the central bank lends short-term funds to banks) by 25 basis points to 7.50 per cent from 7.25 per cent with immediate effect. In the current financial year, the RBI earlier raised the Repo rate by 25 basis points on October 31.
"The central bank is trying to make funds costlier for the system to moderate the demand,''
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