RBI cuts benchmark interest rates by 25 bps kept CRR unchanged at 4

The Reserve Bank of India has cut its benchmark interest rates by 25 bps and kept CRR unchanged today during its monetary policy review which is much lower reduction in interest rate compared to investors- expectations. The bankers and industrial body were disappointed due to this cautious stance of RBI

Repo rate, the rate at which the RBI lends to banks, is cut by 25 bps to 7.25% from 7.5% earlier and reverse repo rate is also cut by 25 bps to 6.25% from 6.5% earlier. The Cash Reserve Ratio, the proportion of deposits to be kept with RBI is left unchanged at 4% as the liquidity condition is far more improved now.

The RBI has raised concern regarding inflation and said it is still higher than its comfort level. Inflation is expected be remain at 5.5% for current financial year, lower than 6.8% in previous financial year 2012-13. It has also projected GDP growth for current financial year at 5.7% higher than the 5.1% expected in 2013.

RBI has also described the widening current account deficit and its financing as the biggest threat to monetary policy and it has warned that growth would slip if governance is not improved and supply constraints are not unlocked.