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

MUMBAI Tue Jan 29, 2013 11:58am IST

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

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

Credit: Reuters/Punit Paranjpe/Files

Related Topics

Rajalakshmi (C), 28, smiles after winning the Miss Wheelchair India beauty pageant in Mumbai November 26, 2014. REUTERS/Danish Siddiqui

Miss Wheelchair India

Seven women from across India participated in the country's second wheelchair beauty pageant, which aims to open doors for the wheelchair-bound in modelling, film and television, according to organisers  Slideshow 

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.

(Read main story, click here)

(Read expert views, click here)

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)

FILED UNDER:

REUTERS SHOWCASE

WTO Trade Deal

WTO Trade Deal

WTO clinches first global trade deal in its history  Full Article 

Kashmir Attack

Kashmir Attack

Ten dead in Kashmir's worst militant attack in more than a year  Read 

OPEC Meeting

OPEC Meeting

Saudis block OPEC output cut, oil price sinks further.  Full Article 

E-Commerce Boom

E-Commerce Boom

Online grocers come up trumps in India's e-commerce boom   Full Article 

GDP, RBI Preview

GDP, RBI Preview

GDP growth set to weaken, business wants reforms more than rate cut  Full Article | Related Story 

Jaitley to Rajan

Jaitley to Rajan

Jaitley likely to meet Rajan on Monday to urge rate cut  Full Article 

Banking Sector

Banking Sector

India moves to allow more businesses to offer basic financial services.  Full Article 

Jamini Roy

Jamini Roy

Photo Gallery – Bengali household name Jamini Roy’s paintings  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage