subject: Rbi Must Work On Inflation [print this page] This will be a boost for the realty sector, NETWORK HOMES offers comprehensive real estate services with cutting edge technology and transformational processes. Whether you are searching for Flats in Bangalore/ Villas in Bangalore/ Retail space Bangalore/2BHK homes Bangalore with lower interest rates, we take care of all the details and provide you right information through http://www.networkhomes.in/searchpropertybangalore_form.php only.which has been witnessing severe pressures in terms of cost escalations.
There has been unanimous demand from the corporate sector, banks and the realty sector for a reduction in the key interest rates. The high interest rates have translated into high costs for property developers. On the other hand, the RBI has been maintaining a tough stand in order to control the inflation rate. It does not want to soften the hard steps it has taken over the past few years to keep inflation under control.
However, the RBI has maintained status quo now. It has left the repo rates unchanged at eight percent. Yet, the RBI cut the cash reserve ratio (CRR) by 25 basis points from 4.5 percent to 4.25 percent. The CRR is the amount kept by banks with the RBI mandatorily. This measure is expected to infuse Rs 17,500 crores into the banking system. According to the RBI, the reduction in the CRR is intended to pre-empt a prospective tightening in the liquidity conditions, thereby keeping liquidity comfortable to support growth. It anticipates a rise in inflation before some easing in the last quarter of this financial year. While risks of this trajectory remain, the baseline scenario suggests a reasonable likelihood of a policy easing in the fourth quarter of 2012-13. This policy guidance will, however, be determined by the growth-inflation dynamics. The RBI expects that this move in the meanwhile will ease the liquidity condition. This will promote credit off-take and growth.
According to a statement by the RBI, "the persistence of inflation pressures, even as growth has moderated, remains a key challenge. Consequently, managing inflation and inflation expectations must remain the primary focus of the monetary policy. Accordingly, over the past few quarters, the monetary policy had to focus on inflation, even as growth risks have increased. As the recent policy initiatives by the government start yielding results in terms of revitalising activity, they will open up space for the monetary policy to work in concert to stimulate growth. However, in doing so, it is important not to lose sight of the primary objective of managing inflation and inflation expectations".
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The RBI believes that by the present actions, the liquidity conditions will facilitate a turnaround in credit growth to productive sectors so as to support economic growth. Further, as the inflation risks moderate, the growth stimulus of the policy actions announced by the government will be reinforced. Also, it expects the policy action to anchor medium-term inflation expectations on the basis of a credible commitment to low and stable inflation.
The reduction in the CRR indicates it is only a matter of time before interest rates start coming down. Banks follow repo rate changes and a repo rate cut is followed by cuts in deposit and lending rates. The reduction in CRR will inject around Rs 17,500 crores into the banking system and it is a move to pre-empt any potential threat to comfortable liquidity. However, the RBI's policy statement clearly indicates that the inflation rate continues to be a concern in the near term. It raised the inflation target for the full year to 7.5 percent from seven percent.
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THE CUT IN THE CRR TRANSLATES TO AN ADDITIONAL Rs 17,500 CRORES IN THE BANKING SYSTEM THE LIQUIDITY CONDITION IS EXPECTED TO FACILITATE A TURNAROUND IN PRODUCTIVE SECTORS AND THEREBY SUPPORT ECONOMIC GROWTH INFLATION CONTINUES TO REMAIN A PRIORITY AREA FOR THE RBI
