RBI Cuts Repo Rate By 25 bps to 7.25%, Retains CRR at 4%

RBI’s monetary policy statement for FY14 will  set tone for growth expectations this year. With the manufacturing sector of the economy in doldrums, economists, market analysts and bankers were pitching for a rate cut. But inflation remained above comfort level & the RBI had cautioned against less room for easing.

Governor  Subbarao has obliged this time with a Repo Rate cut of 25 bps to 7.25.  The Reserve Bank of India (RBI) has cut repo rate for the third time since January. The cut may lead to softening of loan EMIs.

Following the 25 basis points cut, the repo rate stands at 7.25 per cent, its lowest since May 2011 even as Cash Reserve Ratio (CRR) has been kept unchanged at four per cent.

The RBI also pegged India’s economic growth for the 2013-14 fiscal at 5.7 per cent.

However, it warned that the risk of inflationary pressure persists despite a recent sharp decline in wholesale price index (WPI) inflation, and said a high current account deficit poses the biggest risk “by far” to the Indian economy.

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