RBI announced a rate cut after three years of tightening

The Reserve Bank of India (RBI) finally succumbed to pressure from the economy and has announced a rate cut after three years of tightening. Inflation has seen moderation over the previous year; but it still remains sticky on account of global commodity prices and supply side constraints. However, growth in the Indian economy has been the major letdown, falling to 6.1% in 3QFY12. This forced the central bank's hand and in the first monetary policy review of FY13, the RBI decided to reduce the rates at which it lends to banks (repo rate) by 0.50%. Thus the repo rate now stands at 8% from 8.5% previously. The rate at which RBI borrows from banks (reverse repo) now stands 7% post the review. The central bank left the cash reserve ratio (CRR) unchanged at 4.75. The central bank's growth forecast for FY13 now stands at 7.3%, moderately higher than that seen in FY12. The RBI has however indicated that the scope for further rate cuts is remote.