Aggressive RBI cuts repo rate by 25 bps to 7.5%
20 March 2013 6:15 AM IST
In its second repo rate reduction this year. the Reserve Bank of India (RBI), the country’s central bank, lowered the key policy parameter by 25-basis points (bps) to 7.5 per cent on Tuesday. However, the RBI Mid-Quarter Policy Review kept the reverse repo rate unchanged at 6.5 per cent and the cash reserve ratio (CRR) for banks the same at 4 per cent. All these developments were in line with market expectations.
The Indian economy has been facing sustained high inflation rates and current account deficit. The latest data too revealed a sharp rise in wholesale price inflation, food price-driven consumer inflation and a record-high current account deficit. Tuesday’s repo rate cut will certainly worsen the inflation scenario and badly affect the already high price-overburdened common man. However, the RBI defended its latest policy measures by pointing out that the Indian economy is expected to grow at its slowest rate in a decade of 5 per cent in the current fiscal year (April 2012- March 2013). Thus, there is a desperate need to boost investment to spur the stagnant economy. The RBI pointed out that ‘even as the policy stance emphasises addressing growth risks, headroom for further monetary easing remains limited’.
The Indian economy has been facing sustained high inflation rates and current account deficit. The latest data too revealed a sharp rise in wholesale price inflation, food price-driven consumer inflation and a record-high current account deficit. Tuesday’s repo rate cut will certainly worsen the inflation scenario and badly affect the already high price-overburdened common man. However, the RBI defended its latest policy measures by pointing out that the Indian economy is expected to grow at its slowest rate in a decade of 5 per cent in the current fiscal year (April 2012- March 2013). Thus, there is a desperate need to boost investment to spur the stagnant economy. The RBI pointed out that ‘even as the policy stance emphasises addressing growth risks, headroom for further monetary easing remains limited’.
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