RBI surprises, cuts CRR, repo rates by 25 bps today
Shedding its nine-month long hawkish monetary policy stance, the RBI cut short-term lending rate called repo by 0.25 per cent to 7.75 per cent and Cash Reserve Ratio (CRR) by similar margin to 4 per cent. The other key rates have been adjusted accordingly.
These initiatives are aimed at encouraging investments, supporting growth and anchoring inflationary expectations, RBI Governor D Subbarao said while unveiling the third quarter monetary policy review here.
Bankers indicated that they would cut lending and deposit rates over next couple of days to the benefit of borrowers, though depositors may get lesser returns. The industry too appeared satisfied with the rate cut hoping that it would boost demand and promote growth.
On future policy actions, RBI said, it would depend upon fiscal situation and growth-inflation dynamics, which to a large extent will be conditioned by the budget to be presented by Finance Minister P Chidambaram on February 28.
"If inflation moderates further, CAD (Current Account Deficit) moderates further, there will be more room for monetary policy easing. But if they go along the currently expected lines, the space for monetary policy easing is quite limited", Subbarao said.
RBI has lowered the growth projection for the current fiscal to 5.5 per cent from 5.8 per cent estimated earlier.