Mumbai: The RBI today announced a dovish credit policy without any changes in key rates, saying the system was flush with liquidity, but it disappointed bourses that went into a tailspin and bankers were disinclined to cut interest rates immediately.

While lowering the economic growth projection for 2008-09 to 7.5-8 per cent from 8 per cent earlier, the central bank said inflation could come down to 7 per cent by March-end as forecast already, even though maintaining a price line was identified as a major focus area.

Days before the busy season credit policy, the RBI had taken measures to inject Rs 185,000 crore in the economy, including through a 250 basis point cut in Cash Reserve Ratio. Besides, it reduced the short-term lending rate (repo) by one per cent to lower the cost of borrowings by banks possibly to bring down commercial interest rates.

With the looming pressures of global meltdown, which it felt was the worst financial situation since the Great Depression, the bank said: "RBI is confident of managing the situation and minimising the adverse impact of the global crisis on the Indian economy."

The response of commercial banks to the policy (for the October-March period) was subdued, while stock markets lost 1100 points and the Rupee closed at an all-time low of 49.95 after breaching the 50 mark in intra-day.

Stating that the policy was on expected lines, Finance Minister P Chidambaram, who for the past few weeks has been battling to prop up the economy and restore confidence in the banking system, said that RBI would pump in more liquidity as and when needed.

The review was the first by RBI under its new Governor D Subbarao, who told reporters "We signal interest rates. It is for the banks to take a decision on what their interest rates should be."
Source : PTI