Reserve Bank of India cuts Repo and Reverse Repo rates by 25 bps kept

The Reserve Bank of India (RBI) has cut the repo rate by 25 basis points to 7.50% and cut the reverse repo rate also by 25 basis points to 6.50% during its mid-quarter monetary policy review today in order to boost growth. These measures were in line with the expectations. At the same time, RBI has kept the CRR (Cash Reserve Ratio) unchanged at 4% and kept the SLR (Statutory Liquidity Ratio) unchanged at 23% during its mid-quarter monetary policy review. This is the second rate cut by the RBI for this year as it cut rates during its previous monetary policy review as well on 29th January.

Rate cut by RBI was necessary to boost both economic and industrial growth as India-s GDP growth dropped to record low of 4.5% in last quarter and Its IIP growth stood at almost flat level. India-s IIP growth stood at 2.4% in January after contraction in previous two months. Also current account deficit hit a record-high 5.4% in the last quarter and is expected to end the current fiscal year at its highest level ever. Considering all these, RBI has now given more importance to growth and to improve the investment climate and to make the interest rates competitive, it has decided to cut rates.

RBI has also warned today that further monetary easing will be difficult due to high inflation. India-s overall inflation increased marginally to 6.84% in February while the retail (CPI) inflation stood at 10.9% in the same month. This high inflation still haunts RBI and provides very less opportunity for any further rate cut. Global credit rating agency Moody-s has recently said India-s high inflation to be credit negative for India-s sovereign credit rating.