The Reserve Bank of India released the second quarter review of monetary policy 2012-13. In order to release liquidity into the system to support growth and credit lending to productive sectors the RBI has reduced the Cash Reserve Ratio – CRR by 25 basis points from 4.50 per cent to 4.75 per cent. The CRR is the amount of CRR is the amount of money that banks have to keep with RBI. The CRR cut will inject an additional liquidity of Rs 17,500 crores in the banking system. The cut will be effective from November, 3rd this year.

RBI has kept all the other key policy rates unchanged. The policy repo rate under the Liquidity Adjustment Facility – LAF remains at 8 per cent. The reverse repo rate will remain unchanged at 7.0 per cent. Repo rate is the rate at which RBI lends money to banks while the Reverse Repo rate is the rate at which RBI borrows money from banks. The marginal standing facility – MSF rate and the Bank Rate have been kept unchanged at 9.0 per cent.

Speaking at the release of the second quarter review of monetary policy in Mumbai today, RBI governor, D. Subbarao said that once the Government’s efforts to tame inflation bear fruit, the RBI will be in a better position to ease interest rates. He also said that inflation in the near term is expected to rise, but ease by January 2013. The RBI has also increased March-end inflation target by 7.5% from 7%.

The RBI has also introduced in its second quarter review, a slew of measures on banking regulation, including steeply increasing the provisioning on standard restructuring assets. The next mid quarter review of RBI’s monetary policy will be announced on December, 18th this year.

Meanwhile, The Bombay Stock Exchange, erased initial gains and fell 195 points today after the RBI kept key interest rates unchanged and lowered economic growth estimate.