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October 22, 2001
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Highlights of the Monetary and Credit Policy for 2001-2002

  • The Reserve Bank of India announced a cut in Bank Rate by 0.50 percentage point, from 7.0 per cent to 6.50 per cent to touch its lowest since May 1973.

  • The RBI reduced CRR by 2.0 percentage points from 7.50 per cent to 5.50 per cent, releasing on additional liquidity of Rs 60 billion to banks.

  • Most of the exemptions available on CRR removed.

  • Interest rate paid on eligible CRR balances increased further to the level of Bank Rate i.e. 6.5 per cent (from 6.0 per cent since April 21, 2001 and 4.0 per cent earlier).

  • All the exemptions on the liabilities will be withdrawn, except inter-bank, for the computation of net demand and time liabilities for CRR, with effect from the two-week period beginning November 3, it said.

  • The policy measures will release about Rs 80 billion, of which about 60 billion will be available from November 3, the RBI said.

  • Monetary Policy stance will continue as in the first half of the year.

  • In view of global uncertainties, the RBI considers a projection in the range of 5.0 per cent to 6.0 per cent growth rate for 2001-02 as reasonable for monetary management.

  • The RBI aims to strengthen financial system and efforts towards this direction will continue.

  • RBI has provided operational flexibility to banks in "Loan System" for credit delivery.

  • RBI has initiated steps to closely monitor non-SLR investments by banks and financial institutions.

  • The RBI Current Account Facility will also be rationalised.

CRR = Cash Reserve Ratio, the fortnightly cash balances maintained by commercial banks with the central bank.

Bank Rate = Bank Rate is the rate at which RBI allows finance to commercial banks. Normally, different types of refinance facilities by RBI to banks are linked to a Bank Rate. Bank Rate is a tool which RBI uses for short-term purposes. Any revision in Bank Rate by RBI is a signal to banks to revise deposit rates as well as Prime Lending Rate.

SLR = Statutory Liquidity Ratio. Banks in India are required to maintain 25 per cent of their demand and time liabilities in government securities and certain approved securities. These are collectively known as SLR securities. The buying and selling of these securities was the seed of the 1992 scam.

FCNR(B) Deposits. (foreign currency non resident Indian - banking deposits.)

FCNR (Foreign Currency Non-Resident Indian).

M1: A measure of money supply that includes all coins and notes in circulation, and personal current accounts. M3: A measure of money supply, including those covered by M2 -- a measure of money, supply, including M1, plus personal deposit accounts -- plus government deposits and deposits in currencies other than rupee.

Repo: repurchase agreements or ready forward deals, a secured short-term -- usually 15-day -- loan by one bank to another against government securities. Legally, the borrower sells the securities to the lending bank for cash, with the stipulation that at the end of the borrowing term it will buy back the securities at a slightly higher price, the difference in price representing the interest.

The Monetary & Credit Policy
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