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RBI leaves rates untouched, lowers growth target to 7.5-8%

The Reserve Bank today held steady its key rates, surprising bankers who said that customers would have to wait awhile for any cut in lending rates, even as the decision sent the stock markets tumbling. The central bank, which had infused Rs 1,85,000 crore liquidity into the banking system this month, decided to keep all key rates (repo, reverse repo, bank rate) and cash reserve ratio (CRR) unchanged in its mid-term review of the annual monetary policy.

The review, the first by RBI under new Governor D Subbarao, lowered growth projections to 7.5-8 per cent for 2008-09 and kept inflation forecast unchanged at 7 per cent by end-March in the face of cooling crude and commodity prices.

The slow GDP growth projection and distant prospects of lower interest rates - crucial to stimulating the economy - disappointed stock market investors, who hammered banking stocks sending the benchmark Sensex crashing below 9,000 points in intra-day trade.

Only on October 11, the apex bank cut CRR, the percentage of depositors' money banks are required to park with the central bank, by 2.5 per cent - from 9 per cent to 6.5 per cent - to inject Rs 100,000 crore liquidity. It reduced repo rate, the rate at which RBI lends short-term funds to banks, by one per cent to 8 per cent on October 20.

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