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The RBI will be reviewing the monetary policy of the2009-10 fiscal on Tuesday, with the signs of economy recovering become more evident, but concerns regarding the rising inflation due to higher food prices still exits.
The policy will be reviewed in the presence of chief executives of commercial banks by Reserve Bank of India (RBI) Governor D. Subbarao. The policy is expected not to bring about any changes to the key rates but there are chances for increasing the cash reserve ratio for implementing a restriction on 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%. But In April the repo had been cut along with reversing the repo rates by 25 basis points, but then also the statutory liquidity ratio and the cash reserve ratio had remained the same.
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.
