Annual Monetary Policy for 2011-12

RBI has announced a few policy changes as part of its FY12 monetary policy. Given below are the key points:-


Monetary Measures:

• Repo and Reverse Repo rate hiked by 50 bps to 7.25% and 6.25% respectively
• Cash Reserve Ratio (CRR) is unchanged at 6%
• Savings bank deposit interest rate increased to 4% from the current 3.5% - will look to deregulate savings bank rate based on feedback on the recent discussion paper

Changes to the operational framework of the Monetary Policy:

• Move to a singular policy rate – to use repo rate as the single varying policy rate
• Reverse repo would be fixed at 100 bps below the repo rate
• Introduces Marginal Standing Facility, whereby banks to borrow from RBI at 100bps above repo rate 

• Economy forecasted to expand by 8% in FY12, assuming normal monsoons and oil prices averaging at about $110/bbl

• Expects inflation to remain elevated in the first half of FY12 and reduce later - projects WPI at 6% (with upward bias) by March 2012.

• Has limited banks investments in liquid mutual funds to 10% of their net worth as on March 31 of the previous year - has given a transition time of 6 months to comply with this measure.

• Financial Products: Is expected to issue guidelines for CDS (corporate bonds) by May 2011, the period of short sale has been extended to 3 months (from 5 days) and FIIs are now allowed to cancel and rebook up to 10% of the portfolio (from 2%) at the beginning of the financial year.

• Overall, policy measures reflect the heightened focus on containing inflation and point towards a period of moderating growth