Mumbai, Jan 29 (ANI): The Reserve Bank of India (RBI) lowered its key policy rate on Tuesday as expected for the first time in nine months to support an economy set for its slowest growth in a decade, but signalled there was less room for aggressive cuts in future due to concerns over inflation.
The Reserve Bank of India cut the policy repo rate by 25 basis points to 7.75 percent.
"Based on an assessment of the current macro economic situation, we have decided to reduce the policy repo rate under the Liquidity Adjustment Facility (LAF) by 25 basis points, bringing it down from 8 percent to 7.75 percent. Consequent to this, the reverse repo rate under the LAF determined with a spread of 100 basis points below the repo rate gets calibrated to 6.75 percent," said RBI Governor Duvvuri Subbarao.
The RBI unexpectedly also reduced the cash reserve ratio (CRR), the share of deposits banks must keep with the central bank by 25 bps to 4.00 percent, which will infuse an additional 180 billion rupees into the banking system.
"We have also decided to reduce the Cash Reserve Ratio (CRR) of scheduled banks by 25 basis points from 4.25 percent to 4 percent of their net demand and time liabilities (NDTL), effective the fortnight beginning February 09, 2013," Subbarao added.
India's headline inflation rate moderated to a three-year low of 7.18 percent in December, and the central bank said there was likelihood that inflation would remain rangebound around current levels heading into 2013/14 fiscal year starting April.
Bond and stock markets were largely unmoved as dealers had already priced in a quarter percentage point rate cut. The 10-year bond yield was flat at around 7.87 percent.
The RBI cut its GDP growth forecast for Asia's third-largest economy to 5.5 percent for the current fiscal year, from 5.8 percent previously, and lowered its projection for headline inflation in March to 6.8 percent from 7.5 percent earlier.
"It will take some time to reverse the investment slowdown and reinvigorate growth. Accordingly, we have revised downwards our baseline projection of GDP growth for the current year from 5.8 percent to 5.5 percent," Subbarao said. (ANI)