MUMBAI (Reuters) - The Reserve Bank of India lowered its key policy rate as expected for the first time in nine months to support an economy set for its slowest growth in a decade, but signalled there was less room for aggressive cuts in future due to concerns over inflation.
Following are highlights from the monetary policy statement:
* Cuts repo rate by 25 basis points to 7.75 percent.
* Reverse repo adjusted to 6.75 percent.
* Cash reserve ratio cut 25 basis points to 4.00 percent effective fortnight beginning February 9.
* Marginal Standing Facility rate adjusted to 8.75 percent.
* Bank rate adjusted to 8.75 percent.
(Read main story, click http://in.reuters.com/article/2013/01/29/india-rbi-policy-review-repo-rates-idINDEE90R0GI20130129)
(Read expert views, click http://in.reuters.com/article/2013/01/29/expert-views-rbi-cuts-repo-rate-crr-idINDEE90S02Z20130129)
* Expectations of rangebound inflation in 2013/14 provides space, albeit limited, for policy to give greater emphasis to growth risks.
* It is critical that even as the monetary policy stance shifts further towards mitigating growth risks, the objective of containing inflation and anchoring inflation expectations is not de-emphasised.
* CRR cut to infuse 180 billion rupees into the banking system.
* Financing high current account deficit with volatile capital flows potentially threatens macro-economic, foreign exchange rate stability.
* Baseline GDP growth forecast for 2012/13 cut to 5.5 percent from 5.8 percent earlier.
* Baseline wholesale price index inflation projection for March 2013 cut to 6.8 percent from 7.5 percent.
* Cuts M3 projection to 13 percent from 14 percent earlier.
* Retains credit growth projection at 16 percent.
* Monetary policy will continue to condition, contain inflation perception in 4.0-4.5 percent range.
* The moderation in inflation conditions provide the opportunity for monetary policy to act in conjunction with fiscal and other measures to stem the growth risks.
* Still high input costs and wages continue to impart upward pressures on prices.
* Further moderation in domestic inflation going into 2013/14 is likely to be muted as the correction of under-pricing of administered items is still incomplete and food inflation remains elevated.
* More reforms crucial for raising potential growth path in medium term.
* Critical now to arrest loss of growth momentum without endangering external stability.
* Global growth recovery likely to be anaemic and is also fraught with significant downside risks.
* Sluggish external demand continues to inhibit improvement in services.
* New investment demand, which should be the key driver of the upturn, continues to be weak.
* 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.
* Investment activity has been way below desired levels and consumption demand has started to decelerate.
* Banks should be discerning in loan decisions, ensure adequate credit flow to productive sectors.
* Risk aversion in banking system due to concerns of asset quality constraining credit flow.
* Full text of statement, click http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=7833&Mode=0
* Special Coverage: RBI policy review, click http://in.reuters.com/subjects/rbi-policy-review
(Compiled by Neha Dasgupta; Editing by Ranjit Gangadharan)