New Delhi, March 19: In line with expectations, the RBI on Tuesday cut its short-term lending rate by 0.25 per cent to spur growth and revive investment but sounded a note of caution on further easing of rates on account of high food inflation and current account deficit.
“The foremost challenge for returning the economy to a high growth trajectory is to revive investment. A competitive interest rate is necessary for this but not sufficient,” the Reserve Bank said in its mid-quarter review of the monetary policy.
Accordingly, its short-term lending rate or the repo was reduced by 0.25 per cent to 7.5 per cent, making it the second consecutive cut in as many months.
The market was widely expecting a cut by 0.25 per cent due to the deteriorating growth, which is estimated to touch a decade low of 5 per cent and a cooling in the core inflation to a 35-month low.
Expecting the government to begin spending, it left the cash reserve ratio or the amount of deposits banks have to park with RBI, unchanged at 4 per cent.
The RBI, however, stressed that a interest rate cut alone will not be helpful in order to achieve the objective of reviving investment and called for bridging supply constraints and staying course on fiscal consolidation.
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