The Ministry of Finance states that in RBI’s bi-monthly credit policy announced today, the Reserve Bank of India (RBI) has kept the policy rate unchanged, as expected by markets. RBI has, however, reduced the SLR by 50 basis points giving banks greater leeway to lend, the Ministry adds. The Ministry further observes that as the economy picks-up and demand grows, this will allow an increase in bank credit. Recent data on inflation shows that inflation is moderating. The Finance Ministry states that on its part, the Government remains committed to the path of fiscal consolidation and reviving the investment cycle that will help bring down inflation and pick-up growth further. The Governor, RBI has already stated that RBI will not hold interest rates high any longer than is necessary and if disinflation proceeds as warranted, there will eventually be room to cut rates. The Ministry further states that going forward, the RBI should examine the liquidity situation, inflation and growth in setting policy rates.

SLR reduction increases banks' lending capacity while policy rates held steady, tied to moderating inflation and growth prospects. Reduction of the Statutory Liquidity Ratio by fifty basis points increases banks' leeway to lend by lowering mandatory holdings of safe government assets while the policy rate was left unchanged; the Ministry links the move to moderating inflation, a need to revive credit as demand grows, and advises that future policy rate decisions should balance liquidity, inflation, and growth considerations.