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RBI eases key rates,spurs lower home & auto interest hopes

The Reserve Bank of India (RBI) on Friday cut key policy rates by a quarter percentage point for the third time since January, a move that India Inc and economists hopes will revive growth and make auto, housing and other loans cheaper.

The repurchase (repo) rate, the rate at which the central bank lends to commercial banks, has been cut by 25 basis points (bps) to 7.25 per cent and the reverse repo rate has been lowered by 25 bps to 6.25 per cent.

Both rates are now at their lowest level since May 2011. The bank has kept the cash reserve ratio unchanged at 4 percent.

However, RBI Governor Duvvuri Subbarao has said that there is little room for further policy easing, given the current macro economic situation.

‘The balance of risks stemming from the Reserve Bank’s assessment of the growth-inflation dynamic yields little space for further monetary easing,’ Subbarao said in the RBI’s annual monetary policy for 2013-14.

Finance Minister P Chidambaram said, ‘RBI reduced policy rates by 25 basis points. If the inflation trend goes down further, that will decide scope for further policy action. Let’s accept what has been done today and let us see what the future holds.’
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