RBI cuts repo rate by 0.25%, but warns room for further easing limited
Mumbai,March 19, 2013: The Reserve Bank of India (RBI) cut its key repo rate -- the rate at
which the central bank lends short-term money to banks -- by 0.25 per
cent to 7.5 per cent on Tuesday. The central bank left the cash reserve ratio (CRR) -- the proportion of
deposits that banks have to mandatorily park with the RBI -- at 4 per
cent, the lowest since December 1974.
However, the RBI has cautioned that even as the policy stance
emphasises addressing the growth risks, the headroom for further monetary easing
remains quite limited. The caution reinforced market expectations that
the central bank will only lower them by a further 25 or 50 bps in the
next fiscal year starting April 1, 2013.
Montek Singh Ahluwalia, Deputy Chairman at the Planning Commission,
said, "_We are looking at it (the 25 bps rate cut) with unhappiness.
We feel, the signal should have been stronger... Many people would say
that the signal should have been more robust than 25 basis points."
This is the second policy rate cut by the RBI this calendar year to help
revive a faltering economy, taking comfort from moderating core price
pressures and the government's commitment to trim the fiscal deficit.The RBI had reduced the repo rate by 25 basis points to 7.75 per cent in
January after holding it steady for nine months.
The central bank expressed growth concerns, saying headline inflation is
likely to remain range-bound at the current levels over the next fiscal
year. "Notwithstanding the moderation in non-food manufactured products
inflation, the headline inflation is expected to be range-bound around
current levels over 2013-14," the central bank said in a statement issued on Tuesday.Source: NDTV