RBI acknowledges govt efforts, surprises with rate, CRR cuts

The Reserve Bank of India (RBI) cut its key policy rate and banks' cash reserve ratio by 25 bps, signalling its intent to support the government's efforts to bring the country's economy back on track.

After the cut, the repo rate, the rate at which banks borrow funds from the RBI, will be 7.75 percent, and the CRR stands at 4.00 percent.

The CRR cut will inject Rs 18,000 crore into the banking system, Subbarao said today.

The RBI also cut the GDP growth forecast for the current financial year to 5.5 percent from its earlier forecast of 5.8 percent. It also cut inflation projection for the year to 6.8 percent fromthe earlier 7.5 percent, but said there is only limited space for inflation to move downward.

"A sustained reduction in inflation pressure is, however, contingent upon alleviation of supply constraints and progress on fiscal consolidation. This will also help mitigate the cost-push pressures stemming from the surge in wages," it said.

RBI expects headline inflation to remain rangebound at the current levels going into 2013-2014 and said this provides limited space for monetary policy to give greater emphasis to growth risks.



The central bank has been resisting a rate cut for the last nine months, even as industry and the government clamoured for one as the economic growth slowed down considerably.

"While the series of policy initiatives by the Government has boosted market sentiment, it will take some time to reverse the investment slowdown and reinvigorate growth," it said in the report, acknowledging the government's recent reforms measures.

The equity markets remained flat as the rate action from the central bank came in as expected.

Reacting to the policy statement, Prime Minister's Economic Advisory Council (PMEAC) Chairman C. Rangarajan said going ahead more rate action will be dependent on how inflation will move henceforth.

Rangarajan also expects inflation to fall by 1 percentage point by next fiscal.

Read the full statementhere.

Updated Date: Dec 20, 2014 15:31 PM

Also Watch

Watch: Firstpost test rides the new Thunderbird 500X in Goa and walks you through the Royal Enfield Garage Cafe
  • Tuesday, April 17, 2018 Varun Dhawan on Shoojit Sircar's October, 5-star reviews and working with Anushka Sharma in Sui Dhaaga
  • Saturday, April 14, 2018 Ambedkar Jayanti: Re-visiting Babasaheb's ideals exposes fake Dalit politics of Rahul Gandhi and Congress
  • Monday, April 9, 2018 48 hours with Huawei P20 Pro: Triple camera offering is set to redefine smartphone imaging
  • Monday, April 16, 2018 Rajyavardhan Singh Rathore interview: Sports can't be anyone's fiefdom, we need an ecosystem to nurture raw talent

Also See