RBI leaves rate cut for new year

Mumbai:The Reserve Bank of India disappointed markets on Tuesday leaving all rates unchanged in its midterm policy review but reaffirmed its commitment to support growth in the January policy by when inflation is expected to ease further. 

    Several statements by the central bank in its review are being seen by the market as a definite pointer to a rate cut in January which was indicated by RBI earlier. The comments include a lower growth projection, optimism on government measures boosting sentiment and an expectation that prices would ease in coming weeks. What this means for borrowers is that banks are unlikely to reduce lending rates before January. 
    Pointing out that GDP growth is evolving along the baseline projection of 5.8% for 2012-13, RBI said that the government's recent policy initiatives should boost sentiment and improve the investment climate. "Headline inflation has been below RBI's projected levels over the past two months," the central bank said in its policy statement as it left cash reserve ratio (CRR) unchanged at 4.25% and the repo rate at 8%. CRR is the percentage of deposits that banks are required to park with RBI while the repo rate is the rate at which banks borrow overnight funds from the central bank. 
    "While disappointing, the status quo is as was widely expected. The recent moderation in inflation numbers, particularly non-food manufacturing at 4.5% in November 2012, a 32-month low, should provide the central bank comfort to begin to consider a rate cut early in the year 2013, as also imported inflation which reveals a decline to 6.5% in November 2012," said Naina Lal Kidwai, Ficci president , who is also country head, HSBC India. 
    "Liquidity has been tight. Given that there has not been any action on the cash reserve ratio front, RBI may infuse liquidity through open market operations," said Shikha Sharma, MD & CEO, Axis Bank. The tightness in the money market is reflected in the extent of bank borrowings from RBI which crossed Rs 1.5 lakh crore on Tuesday. 
    According to Harihar Krishnamurthy, head of treasury at First Rand Bank, RBI may have desisted from a CRR cut because it would have been inadequate to meet the current shortfall. "Liquidity levels have reduced substantially after the advance tax outflows have exited the system, and the system has been running short to the extent of Rs 1.45 lakh crore per day. It is in this context that the RBI may have desisted from a 25-basis point cut in CRR, as that would have released only around Rs 17,000 crore which would have been insufficient. The markets are thus betting on announcement of open market operations by RBI to infuse liquidity into the system," said Krishnamurthy. 
RBI to infuse 8,000cr via OMO on Friday 
Mumbai: The Reserve Bank on Tuesday said it will infuse Rs 8,000 crore into the system by purchasing government securities on Friday as part of liquidity injection measure. 
    As part of the OMO operation, the RBI will auction three government securities with maturity in 2018, 2020 and 2026. AGENCIES