Growth outlook in India remains weak

This as the Reserve Bank of India keeps the policy rate as is.

Morgan Stanley Research said:

Policy rate kept unchanged, in line with expectations: The Reserve Bank of India (RBI) in its mid-quarter review of monetary policy today (15 March 2012) kept the repo rate and reverse repo unchanged at 8.5% and 7.5%, respectively. Consequently, the marginal standing facility (MSF) rate stands unchanged at 9.5%. The cash reserve ratio (CRR) remains unchanged at 4.75% after it was lowered by 75bps (effective Mar 10), ahead of the policy review.

This was in line with our and consensus expectations. The statement noted that the CRR cut ahead of the policy statement was required to address the persistent liquidity deficit beyond RBI’s comfort zone which would have worsened due to the impact of advance tax outflows during week ending Mar 16.

The repo rate is the rate at which the RBI provides liquidity to the commercial banks and the reverse repo is the rate earned by banks on the excess liquidity parked with the RBI. MSF is the additional borrowing window for banks that will provide liquidity at 100 bps above the repo rate in times of extreme shortfall in interbank liquidity. Cash reserve ratio (CRR) is the percentage of net demand and time liabilities (NDTL) that commercial banks need to keep with the RBI as cash.

Policy Statement Comments on Key Issues Growth outlook remains weak…: On the growth front, the policy statement highlighted that the growth outlook remains weak alluding to lower GDP growth in Q3 F2012, moderating IP growth. The policy statement also highlighted, “On the domestic front, while most indicators suggest that the economy is slowing down, the performance in Q4 of 2011-12 is expected to be better than that in Q3.”

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