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Monetary Rolicy Review

Key Highlights:
Repo rate and Reverse Repo rate under the LAF window have been left unchanged at 4.75% and 3.25%, respectively.
Cash Reserve Ratio (CRR) left unchanged at 5.0% of net demand and time liabilities (NDTL).
Bank rate has been kept unchanged at 6.0%.
SLR (statutory liquidity ratio) has been restored to 25% of NDTL (from earlier 24%).
RBI has advised the banks to augment their provisioning coverage to 70% by September 2010.
The growth projection FY10 GDP has been retained at 6.0% with an upward bias.

The inflation (WPI) target for FY10 has been raised to 6.5% from 5% earlier.

RBI has left the key policy rates unchanged; however it has restored the SLR (statutory liquidity ratio) to 25% of NDTL, which was reduced earlier to 24%. The hike in SLR is not likely to impact the liquidity position of the banking system and credit to the private sector.

RBI has also taken some measures which constitute the first phase of its exit strategy.It has reduced the limit for export credit refinance facility along with discontinuing the two refinance facilities provided to the commercial banks to fund the NBFC, HFC and MFs.

This gives some indication about the exit strategy of the RBI. Hence RBI's exit from the accommodative policy is likely to be 'withdrawal of liquidity' first followed by 'rates hike' later.