Mumbai: India`s central bank will review its monetary policy for the current fiscal on Tuesday amid growing signs of recovery in the industrial sector but concerns over rising inflation, especially due to high food prices.
Reserve Bank of India (RBI) Governor D Subbarao will review the policy before the chief executives of commercial banks amid expectations that key rates will be left untouched but the cash reserve ratio may be hiked to curb money supply.
In the first quarter review of the policy three months ago, the central bank had kept the key rates unchanged, but cautioned that inflation rate could balloon to 5 percent.
In April, Subbarao had cut the repo and the reverse repo rates by 25 basis points each, even as the bank rate, the statutory liquidity ratio and the cash reserve ratio were left unchanged.
The repo rate, currently at 4.75 percent, is the interest charged by the RBI on borrowings by commercial banks. A reduction in it lowers the cost of borrowings for commercial banks.
The reverse repo rate, currently at 3.25 percent, is the rate at which the central bank borrows money from commercial banks. A lowering of this rate makes it less lucrative for banks to park funds with the central bank.
The cash reserve ratio, now at 5 percent, is the amount banks have to retain in the form of cash, while statutory liquidity ratio, at 24 percent, is the amount these institutions have to invest in specified securities.