RBI cuts CRR by 25 bps in its Q3 review of monetary policy

MUMBAI: The Reserve Bank of India (RBI) in its third quarter monetary policy review obliged with a 25 basis point repo rate cut. The bank also cut the cash reserve ratio by 25 basis points to 4%.On the eve of the keenly expected review, the central bank, struck a hawkish tone on the state of fiscal and current account deficits, appearing to throw into question even the much-expected 25-basis-point reduction in rates.


"Given the preponderance of non-monetary factors behind the current slowdown in an environment where risks from high inflation, current account and fiscal deficits still remain, the scope for supportive monetary policy action is constrained," said RBI's Macroeconomic and Monetary Developments Third Quarter Review. "As reform actions get executed, monetary policy could increasingly focus on growth revival."


The central bank's cautious tone came as Finance Minister P Chidambaram sought to woo investors in Frankfurt with prospects of lower interest rates reviving economic growth as price acceleration is slowing.


The government has made no secret of its desire to see lower rates in the past, and RBI's reluctance to oblige has been a major point of discord between the two. Last October saw an unprecedented display of irritation by the finance minister at RBI, which did not cut rates against the government's wishes.

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