Newly appointed RBI Governor Raghuram Rajan  announced new Monetary Policy during the RBI’s mid-quarter policy review today. Below are the highlights of the changes in Policy.
The Policy rates have been increased  unexpectedly by 0.25 per cent as RBI  focuses on controlling inflation.
The liquidity was eased through a reduction in the marginal standing facility (MSF) rate, at which banks borrow from the central bank, by 0.75 per cent to 9.5 per cent.
The repo rate or the short term lending rate has been increased by 25 basis points to 7.5 per cent from 7.25 per cent with immediate effect.
The cash reserve ratio (CRR) has remained unchanged. It is  the portion of deposits that banks are required to maintain with the RBI in cash.
The minimum daily maintenance of CRR Â has been reduced from 99 per cent of the requirement to 95 per cent effective from September 21, a move aimed at inducing liquidity into the system.
The central bank’s next monetary policy review is scheduled for October 29.
Earlier Published Report.
Earlier,  Bankers and Industry had demanded lowering of Policy Rates and easing of liquidity. However Analysts were least optimistic about any decrease in Rates, provided the wrecked condition of Indian Economy.
Analysts said that this is highly unlikely that Rajan will lower the repo rate – the rate at which RBI lends short-term funds to banks since that would mean sending a signal of monetary easing.
However Industry Bodies had tried hard for the same. Â “We have made our recommendations for releasing the liquidity, making it more accessible, making it less expensive,” State Bank of India (SBI) Chairman Pratip Chaudhuri said earlier.
“We have recommended a cut CRR, repo rate and asked RBI not to restrict the MSF to a particular number. Whatever excess SLR banks hold that should be available for MSF (marginal standing facility),” he said.
Other experts, however, were of the opinion that Rajan will maintain status quo in view of rising inflation.
“I do not expect any change in the key interest rate tomorrow,” said D K Joshi, chief economist at credit rating agency Crisil.
Very few analysts had predicted Rajan bringing down the Marginal Standing Facility rate which it had raised to 10.25 percent in a bid to squeeze liquidity and cushion the rupee, a move which was seen as a virtual hiking of interest rates.
RBI had raised bank rate and MSF to banks by 2 percent to 10.25 percent making loans costlier in its bid to contain the rupee slide.
Introduced during the 2011-12 period, MSF allows banks to borrow money from the central bank at a higher rate when there is significant liquidity crunch.
“We think this tightening of the liquidity and making it more expensive of course may have been helpful in containing or arresting decline of rupee but it has its collateral cost in terms of growth of economy,” Chaudhuri said.
Indian Overseas Bank Chairman and Managing Director M Narendra said: “It is our wish that RBI reverses liquidity tightening measures taken recently so that loans become cheaper.”