The Reserve Bank of India (RBI) made a repo rate cut by 0.25%

The Reserve Bank of India (RBI) made another rate cut this year, in its mid-quarter policy review. This move was in line with general market expectation. The Cash Reserve Ratio (% of deposits banks have to park with the RBI) was however kept unchanged. The central bank has become increasingly dovish come 2013, as we predicted at the start of the year. Despite inflation levels not really being benign, the central bank made a rate cut of 0.25%.This was in order to stimulate growth in the flagging Indian economy. The repo rate now stands at 7.5% from 7.75% earlier. The Indian economy expanded at a 25-quarter low of 4.5% in Oct-Dec 2012 quarter, which is worrying. Although industrial production in January picked up to 2.4% growth after two months of contraction, the recovery is still weak. D Subbarao, the RBI governor acknowledged that there is limited headroom to ease monetary policy going forward. The government now has to play a key role in pushing growth. But with the deficit number hitting a record high, this is going to be a tough rope to walk.