RBI Cuts Repo Rates by 25 Basis Points; Interest Rates in Economy Set to Fall

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The Reserve Bank of India (RBI) as promised in its previous Monetary Policy today cut interest rates outside the monetary policy.

The RBI Cut interest rates by 25 basis points to 7.75 per cent from 8 per cent. The RBI's stance was largely to do with a sharp drop in inflation in the last few months and falling crude prices. The country's central bank has left the CRR rate unchanged at 4 per cent.

RBI Cuts Repo Rates by 25 Basis Points; Interest Rates in Economy Set to Fall
"Since July 2014, inflationary pressures (measured by changes in the consumer price index) have been easing. The path of inflation, while below the expected trajectory, has been consistent with the assessment of the balance of risks in the Reserve Bank's bi-monthly monetary policy statements. To some extent, lower than expected inflation has been enabled by the sharper than expected decline in prices of vegetables and fruits since September, ebbing price pressures in respect of cereals and the large fall in international commodity prices, particularly crude oil," the RBI said in a statement.

The central bank has said that inflation is likely to be below 6 per cent by Jan 2016. "Crude prices, barring geo-political shocks, are expected to remain low over the year. Weak demand conditions have also moderated inflation excluding food and fuel, especially in the reading for December. Finally, the government has reiterated its commitment to adhering to its fiscal deficit target, " the RBI said in a release.

However, the central bank warned that further cuts would depend on inflation data.

"Key to further easing are data that confirm continuing disinflationary pressures. Also critical would be sustained high quality fiscal consolidation as well as steps to overcome supply constraints and assure availability of key inputs such as power, land, minerals and infrastructure. The latter would be needed to ensure that potential output rises above the projected pick-up in growth in coming quarters so as to contain inflation."

Stock markets are likely to react positively to the cut in interest rates.

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Read more about: rbi, repo rates
Story first published: Thursday, January 15, 2015, 8:56 [IST]
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