This Article is From Sep 20, 2013

Raghuram Rajan's maiden policy: top 10 takeaways

Raghuram Rajan's maiden policy: top 10 takeaways
New Delhi: The new poster boy of India's otherwise boring banking system, Reserve Bank of India Governor Raghuram Rajan who's been dubbed as "The Guv" on Friday surprised one and all with his maiden monetary policy by hiking short term lending rates.

Here are the top 10 takeaways from the policy

  1. Raghuram Rajan hiked the repo rate- the rate at which the RBI lends short-term money to banks by 25 basis points or 0.25 per cent taking it to 7.5 per cent.

  2. The country's largest lender State Bank of India's (SBI) chairman Pratip Chaudhuri said deposit rates and lending rates will go up post the RBI policy.

  3. Dr Rajan said the hike in the key policy repo rate cannot be immediately viewed as negative for growth. He added that the repo rate hike affects 0.5 per cent of the entire borrowing of the banking system.

  4. The RBI however kept the cash reserve ratio or CRR unchanged at 4 per cent.  Cash reserve ratio is the part of a bank's deposits that they must mandatorily keep with the RBI.

  5. The daily percentage of CRR to be maintained with the RBI has however been brought down to 95 per cent from 99 per cent. The move is aimed at easing liquidity.

  6. In another move to ease liquidity, Dr Rajan decreased the marginal standing facility (MSF) or overnight lending rates by 0.75 per cent to 9.5 per cent. The RBI had hiked MSF by 2 per cent to 10.25 per cent in July to tighten liquidity.

  7. Inflation will be higher than initially projected over the rest of the year, in the absence of an appropriate policy response, Dr Rajan said.

  8. Dr Rajan said he was confident that the current account deficit could be financed this year without suffering a substantial drawdown in foreign exchange reserves. Last fiscal the current account deficit hit a record 4.8 per cent of the gross domestic product or GDP. India's foreign exchange reserves fell to $274.806 billion as of September 6, compared with $275.49 billion in the earlier week.

  9. The RBI would slowly taper-off the special foreign exchange swap window instituted for oil marketing companies when economic conditions improve, Dr Rajan said after mid-quarter policy review.

  10. Dr Rajan said he does not anticipate a new set of rupee stabilising measures since the U.S. Fed had decided to postpone tapering its bond buying program.

(With inputs from agencies)