RBI surprises, cuts CRR, repo rates by 25 bps today

D Subbarao

While stock markets initially cheered RBI's rate cut with the BSE Sensex moving up by 91 points, however, the Sensex declined to 19,991, down by 115 points over yesterday's close.

Asked about a possible cut in deposit and borrowing rate, ICICI Bank CEO and Managing Director Chanda Kochhar said "there is going to be a transmission on the lending side, while on the deposits front, we will wait and watch. There isgoing to be a lag ... The cuts are positive for EMIs".

Commenting on the policy action, Commerce and Industry Minister Anand Sharma said: "It is a positive step which will infuse liquidity and help in catalysing growth."

Planning Commission Deputy Chairman Montek Singh Ahluwalia said the CRR cut will have impact on long term interest rates.

"I think this is the right thing to do at this point of time given that (the decline) in economy is beginning to bottom out," he said.

The repo rate, which was cut last in April 2012, stands revised at 7.75 per cent, while the liquidity infusing CRR stands at 4 per cent effective February 9. CRR was last reduced by 0.25 per cent in November 2012.

Supporting the government's recent reform push, RBI said measures like opening up the FDI in some sectors and moves towards fuel price deregulation should put the economy back on the high growth trajectory and spur investment inflows.

"It is critical now to arrest the loss of growth momentum without endangering external stability," RBI said, adding that a rising current account deficit (CAD) could threaten macroeconomic stability and impact growth.

"Large fiscal deficits will accentuate the CAD risk, further crowd out private investment and stunt growth impulses," RBI said.

Yesterday, the RBI had left everyone guessing with a hawkish policy stance in the third quarter macroeconomic and monetary development report stating that sticky inflation and widening fiscal and current account deficits limited its scope for a rate cut.

... contd.

Please read our terms of use before posting comments
TERMS OF USE: The views expressed in comments published on indianexpress.com are those of the comment writer's alone. They do not represent the views or opinions of The Indian Express Group or its staff. Comments are automatically posted live; however, indianexpress.com reserves the right to take it down at any time. We also reserve the right not to publish comments that are abusive, obscene, inflammatory, derogatory or defamatory.