The RBI’s Third Quarter Review of Monetary Policy 2009-10 is disappointing. The industry was expecting a positive direction in Policy from RBI for reduction in interest rates. However, the Repo Rate and Reverse Repo Rate and Bank Rates have been left untouched.

The RBI has increased Cash Reserve Ration (CRR) by 75 basis points from 5.0 percent to 5.75 percent in two stages. The first stage of increase of 50 basis points from 13th February 2010 and the second stage of increase of 25 basis points from 27th February 2010, which will remove about Rs.36,000 crore from the system which will result in a credit squeeze.

It may be recalled that the interest rates did not come down when the inflation rates went down in the last one year. It is surprising to note that RBI has chosen to tighten the norms due to expected higher inflation which will be mainly due to a lower base of last year.

Our Chamber has already written to Hon’ble Union Finance Minister that the Stimulus Package should be continued for one more year. We also expect the RBI to support the industry which is slowly coming up from the recession so that the recovery will be faster, by working towards liquidity at easier terms.

Source: http://www.indianchamber.in/pr_10_rbi_3rd_review_of_monetary_policy.html