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RBI cuts repo rate by 25 points

Mumbai,Mar 19 (): RBI on expected lines cut the repo rate to banks by 25 points but left the CRR untouched. The apex bank said that further easing of monetary controls in view of current account deficit is not possible in near future.

On news of the RBI cut, rupee weakened and Bombay stock exchange Sensex fell. The Reserve Bank of India today said that wholesale price index being below 7% showing inflation being easing prompted it to cut repo rate. The repo rate which is the interest rate at which it lends to banks was 7.75% and this is down to 7.25% on Tuesday.

RBI said that this was to boost the economic growth which had hit the lowest in a decade. Finance Minister P Chidambaram after the budget had hinted that RBI should now take the cue and cut CRR. CRR is the cash reserve ratio that banks have to deposit with RBI. At present it is 4%. A cut in CRR will give banks more funds to give as loans to industries and consumers. RBI kept the cash reserve ratio at the same percentage after its mid-quarter monetary policy review.

The rupee had yesterday rallied to the 53 mark on reports of CRR cut expected today but it weakened after the announcement and the Sensex fell on RBI’s warning. RBI said that the current account deficit is still high even after a reduction in the fourth quarter, adding that further monetary easing remains limited. A 0.5% drop in BSE and 0.41% in Nifty, rupee fell to Rs 54 and bond yields were down, This is the second cut in repo rate this year but banks feel that this might not do anything dramatic.

RBI has cautioned against increasing minimum support price for crops as it would push food inflation which is high. The apex bank has noted that non-food items and non-oil manufacturing sectors’ inflation has been contained to 3.79% while the whole sale prices have eased to 9%. CAD increased to 5.4% with export decreasing in September but in February this trend has reversed with exports up and import bill being lesser.

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