The Reserve Bank of India (RBI) on Tuesday (October 30, 2012) cut the cash reserve ratio by 25 basis points to 4.25 per cent in its monetary policy review. The decision will infuse nearly Rs 17,000 crore into the banking system. RBI maintained status quo on repo rate, cut GDP growth forecast for 2012-13 to 5.8 per cent from 6.5 per cent and increased inflation estimate to 7.5 per cent from 7 per cent. The BSE benchmark Sensex on Tuesday plunged by 205 points to a five-week low as RBI not only held on to policy rates but also hiked provisioning norms and lowered growth projection, spooking investors who resorted to all-round selling, particularly in bank and realty stocks.
The central bank kept key interest rates unchanged. The repo rate was kept at 8%. Primary focus of RBI is on the inflation for the welfare of the general population as the inflation rate is high in the country.
As we all know that when the supply of money will increase in the system, then more people will become able to buy the same product in the market and competition will increase on that price. So, it will push the price of the product in the upward direction and price of that product will increase in the market.