Millennium Post

RBI expected to cut key rates

In a bid to spur growth and boost consumer sentiment, the Reserve Bank of India is expected to cut key lending rates by 25-50 basis points in its mid-quarter review of monetary policy 2012-13 today. The pressure on the RBI to cut rates has emanated out of recent data which has shown that the economy continues to face the problems of high inflationary pressure and low growth.

As per the data released by the Central Statistics Office last week, India's industrial output grew marginally by 0.1 per cent in April due to poor show of capital intensive mining and manufacturing sectors.

The factory output, measured in terms of the Index of Industrial Production (IIP), had declined by 3.5 per cent in March, the first such contraction in factory output since October 2011, when it shrank by 4.7 per cent.

The sharp fall in factory output is expected to put pressure on the apex bank to cut key interest rates – cash reserve ratio (CRR) and short term lending rates – by anywhere between 25-50 basis points to allow banks to cut interest rates reducing the monthly burden on consumers.

The sectors such as banks, auto and realty are set to gain from the move. As rates are cut, so will the interest rates charged by banks on loans given to consumers.

A cue for the RBI came from the finance minister Pranab Mukherjee, who exuded confidence that the apex bank will 'adjust' the monetary policy to ease macro-economic concerns of slow growth and high inflation. 'I am confident keeping in view all the factors, [the RBI] will adjust the monitory policy,' Mukherjee had said on Saturday.

The gross domestic product (GDP) had slowed to a nine-year low of 5.3 per cent in the last quarter of the 2011-12 fiscal.

However, on the flip side, food inflation re-entered the double-digit zone after a gap of six months in April 2012 and the trend continues in May.
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