Highlights of mid-year review of monetary policy by RBI

RBI released mid-year review monetary policy this Tuesday and there were few surprises except the CRR (Cash Reserve Ratio) hike of 50 basis points. This once again underlines the growing liquidity inflow in the country and pressure on RBI to control Rupee/Dollar exchange rate and inflation.
This hike has virtually ended any hopes of banks softening the interest rates. Automobile sector, which is one of the first sectors to indicate growth/slowdown of economy, is already witnessing falling sales and this hike may further affect the sector adversely.

Important points in the mid-year review were

1. CRR increased by 50 basis points to 7.5 % effective fortnight beginning November 10, 2007
2. No changes in Bank Rate, Repo Rate, Reverse Repo Rate
3. GDP growth forecast retained at 8.5 % for 2007-08
4. M3 expansion to be contained at about 17.0 - 17.5 % during 2007-08