Reserve Bank of India (RBI) announced Credit Policy on June 3.Announcement was very much on expected lines as predicted by majority of the bankers.The Bank kept Repo and Reverse Repo Rates at previous level of 8% and 7% respectively.However,there was a positive surprise in the form of Statutory Liquidity Ratio (SLR) cut of 50 bps to 22.5% from earlier 23%.
Recent months have been a tough period for the economic growth and industrial growth with high inflation leading to tightening of the bank rates.This lead to higher credit rate which was the reason for lower growth.Now Inflation is showing signs of stability and also the new government is under stress to take care of growth also,along with inflation.
The SLR cut could be such a signal to industry that monetary tightening may be at its bottom and there may be period of relaxation in coming months. SLR is the ratio or percentage to its total deposits which a bank needs to maintain with itself at any given point of time in liquid form like cash.SLR cut will lead to more cash with the banks which they can use for loans or credits.This shall help in stimulating growth.
So the current policy is certainly good for economy and stock markets.This is going to have an immediate positive impact.