Highlights: RBI cuts repo rate for first time in nine months

A bank employee checks a 500 rupee note at a counter of Yes Bank's microfinance division in Mumbai October 25, 2008.

MUMBAI (Reuters) - The Reserve Bank of India lowered its key policy rate 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.

Following are highlights from the monetary policy statement:

POLICY MEASURES

* Cuts repo rate by 25 basis points to 7.75 percent.

* Reverse repo adjusted to 6.75 percent.

* Cash reserve ratio cut 25 basis points to 4.00 percent effective fortnight beginning February 9.

* Marginal Standing Facility rate adjusted to 8.75 percent.

* Bank rate adjusted to 8.75 percent.

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POLICY STANCE

* Expectations of rangebound inflation in 2013/14 provides space, albeit limited, for policy to give greater emphasis to growth risks.

* It is critical that even as the monetary policy stance shifts further towards mitigating growth risks, the objective of containing inflation and anchoring inflation expectations is not de-emphasised.

* CRR cut to infuse 180 billion rupees into the banking system.

* Financing high current account deficit with volatile capital flows potentially threatens macro-economic, foreign exchange rate stability.

FORECASTS

* Baseline GDP growth forecast for 2012/13 cut to 5.5 percent from 5.8 percent earlier.

* Baseline wholesale price index inflation projection for March 2013 cut to 6.8 percent from 7.5 percent.

* Cuts M3 projection to 13 percent from 14 percent earlier.

* Retains credit growth projection at 16 percent.

INFLATION STANCE

* Monetary policy will continue to condition, contain inflation perception in 4.0-4.5 percent range.

* The moderation in inflation conditions provide the opportunity for monetary policy to act in conjunction with fiscal and other measures to stem the growth risks.

* Still high input costs and wages continue to impart upward pressures on prices.

* Further moderation in domestic inflation going into 2013/14 is likely to be muted as the correction of under-pricing of administered items is still incomplete and food inflation remains elevated.

GROWTH, ECONOMY

* More reforms crucial for raising potential growth path in medium term.

* Critical now to arrest loss of growth momentum without endangering external stability.

* Global growth recovery likely to be anaemic and is also fraught with significant downside risks.

* Sluggish external demand continues to inhibit improvement in services.

* New investment demand, which should be the key driver of the upturn, continues to be weak.

* While the series of policy initiatives by the government has boosted market sentiment, it will take some time to reverse the investment slowdown and reinvigorate growth.

* Investment activity has been way below desired levels and consumption demand has started to decelerate.

BANKING SECTOR

* Banks should be discerning in loan decisions, ensure adequate credit flow to productive sectors.

* Risk aversion in banking system due to concerns of asset quality constraining credit flow.

* Full text of statement, click here

* Special Coverage: RBI policy review, click here

(Compiled by Neha Dasgupta; Editing by Ranjit Gangadharan)