Highlights: RBI cuts repo rate for first time in nine months

Last Updated: Tue, Jan 29, 2013 06:43 hrs

RBI 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 Feb. 9.

Marginal Standing Facility rate adjusted to 8.75 percent.

Bank rate adjusted to 8.75 percent.


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 ($3.4 billion) 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. INFLATION STANCE

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: http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=7833&Mode=0

Analyst comments on policy statement:

The India Online special page on the RBI policy review is live at http://in.reuters.com/subjects/rbi-policy-review

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