Mumbai, April 30: The Reserve Bank has adopted a soft and flexible stance on changing the repo rate, RBI governor Bimal Jalan today said.
The apex bank had announced a 0.25 percentage point reduction in the bank rate and cash reserve ratio (CRR) in the monetary and credit policy yesterday. However, the repo rate was untouched at 5 per cent.
“While the RBI’s stance in favour of a soft interest rate environment would continue, its view on the repo rate, a short-term instrument to help it maintain comfortable liquidity, would be flexible depending on the conditions,” he said.
The RBI had last cut the repo rate after the Union Budget by half a percentage point.
Jalan added that the Bank Rate would remain stable till October. In case of a shortage of liquidity, the central bank would take measures to see that the shortage does not lead to hardening of interest rates.
“If present conditions remain and if a liquidity shortage happens, then the RBI will take some measures to inject sufficient liquidity so that shortage of liquidity is not the reason for the hardening of interest rates, he said.
In its policy document yesterday, the RBI had said that the current bias towards a soft interest rate regime might be reviewed in case demand picks up and inflationary pressures worsen.
The RBI hinted that interest rates may have bottomed out when it said that a further sizeable downward movements in interest rates is unlikely since real interest rates were relatively low.
Jalan’s comments led to rally in select government security prices. Yields on the 11.40 per cent 2008 security dropped to 5.552 per cent from 5.56 per cent earlier during the day.