Soon after announcing a slew of measures on Saturday, RBI governor D Subbarao made clear that the main aim of reducing the repo and the reverse repo rate was to encourage banks to further reduce lending rates to give a fillip to the credit off-take and arrest economic slowdown.
?In particular, the reduction in the repo and reverse repo rates should result in a reduction in the marginal cost of funds for banks and enable them to improve the flow of credit to productive sectors of the economy on viable terms,? said Subbarao.
On not reducing CRR and SLR Subbarao said the banking industry has enough on the liquidity front.
?It is unfair to say that we have not used the CRR. Since Oct 03, we have reduced the CRR from 9% to 5.5%, by 350 bps, which is very significant in a very short span of time. We are closely monitoring the liquidity situation which is not just comfortable, but more than comfortable today,? said Subbarao.
Talking about inflation, the governor said that inflation will be significantly lower than RBI?s forecast of 7% by March.In October, RBI had targeted inflation to touch 7% by March 2009.
?The fall in commodity prices has been the key drivers for the fall in inflation. However, some contribution has also come from slowdown in domestic demand,? he noted.
?RBI will review the inflation target again in January,? he said.
Talking about working on a refinance facility for the National Housing Bank of an amount of Rs 4, 000 crore, Subbarao said they would announce the details after consideration of the proposal by the central board of the RBI which would meet next week.
Subbarao also said the RBI is closely working with other domestic regulators to strengthen the development of the corporate bond market in India.
