Set with market expectations, the Reserve Bank of India (RBI) on Tuesday cut off short term repo rate by 0.25 to 7.75 % in its quarterly monetary review, raising hopes that Indian economy is appearing on right track.
India’s long wait for rate cuts completed after 9 months that support an economy set for its slowest growth in a decade.
Unexpectedly, the center bank also slashed the cash reserve ratio (CRR), the mandatory deposits portion that banks must keep with RBI, by 0.25 percent to 4 percent. Now it means, banks will have an additional of Rs. 18,000 crore of primary liquidity into the banking system.
This is for the second time RBI positive on CRR as it had already reduced the CRR by 0.25 percent in the previous monetary review.
Meanwhile, by reducing interest rate and CRR, the benefits will pass to customers in form of reduction in the cost of loans such as home loans, auto and corporate loans.
Inflation and growth both have lowered projection for the current fiscal as growth to 5.5 percent from 5.6 percent and inflation has at 7% below its projection of 7.5 percent by March-end, as per RBI report, issued a day before its policy review.
The RBI said to take relevant measures to reduce risks with support of growth as there is an increase inflation forecast into 2013-14 fiscal year starting April.
