Annual Policy Statement for the Year 2010-11- 20th April 2010

Part A. Monetary Policy

IV. Monetary Measures

42. On the basis of the current assessment and in line with the policy stance as outlined in Section III, the Reserve Bank announces the following policy measures:

Bank Rate

43. The Bank Rate has been retained at 6.0 per cent.

Repo Rate

44. It has been decided to:

increase the repo rate under the Liquidity Adjustment Facility (LAF) by 25 basis points from 5.0 per cent to 5.25 per cent with immediate effect. Reverse Repo Rate

45. It has been decided to:

increase the reverse repo rate under the LAF by 25 basis points from 3.5 per cent to 3.75 per cent with immediate effect. Cash Reserve Ratio

46. It has been decided to:

increase the cash reserve ratio (CRR) of scheduled banks by 25 basis points from 5.75 per cent to 6.0 per cent of their net demand and time liabilities (NDTL) effective the fortnight beginning April 24, 2010.

47. As a result of the increase in the CRR, about Rs. 12,500 crore of excess liquidity will be absorbed from the system.

48. The Reserve Bank will continue to monitor macroeconomic conditions, particularly the price situation, closely and take further action as warranted.

Expected Outcomes

49. The expected outcomes of the actions are:

(i) Inflation will be contained and inflationary expectations will be anchored.

(ii) The recovery process will be sustained.

(iii) Government borrowing requirements and the private credit demand will be met.

(iv) Policy instruments will be further aligned in a manner consistent with the evolving state of the economy.