HIGHLIGHTS-India cbank cuts rates for first time in 9 months

Tue Jan 29, 2013 11:54am IST

MUMBAI, Jan 29 (Reuters) - India's central bank 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 Feb. 9.
    * Marginal Standing Facility rate adjusted to 8.75 percent.
    * Bank rate adjusted to 8.75 percent.
 
    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 ($3.4 billion) 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: here
    * Analyst comments on policy statement: 
    * The India Online special page on the RBI policy review is live here
 ($1 = 53.7 Indian rupees)

 (Compiled by Neha Dasgupta; Editing by Ranjit Gangadharan)
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

REUTERS SHOWCASE

Literary Giant Dies

Literary Giant Dies

Nobel winner Garcia Marquez, master of magical realism, dies at 87.  Read 

Election 2014

Election 2014

India holds biggest day of voting with BJP gaining strength  Full Article | Full Coverage 

Insider Trading

Insider Trading

Ex-Goldman director Gupta starts prison term on June 17.  Full Article 

Market Eye

Market Eye

Sensex jumps 351 points, snaps 3-day losing streak  Full Article 

Expansion Plans

Expansion Plans

Reliance Industries, HPCL Mittal plan refinery expansions.  Full Article 

S&P on India

S&P on India

S&P: India's ratings to depend on next govt econ, fiscal policies.  Full Article 

Ambitious Aim

Ambitious Aim

In green car race, Toyota adds muscle with fuel-cell launch.  Full Article 

Deal Talk

Deal Talk

Piramal to buy 20 percent stake in Shriram Capital for $334 million.  Full Article 

Bond Market

Bond Market

A star abroad, RBI boss riles bond traders at home  Full Article 

Reuters India Mobile

Reuters India Mobile

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