RBI cuts key policy rate by 0.25 %

Reserve Bank of India (RBI) has lowered its key repo rate by 25 basis points to 7.25 percent after lowering it by the same amount in January and March. The central Bank had announced its second bi-monthly monetary policy. RBI governor termed the policy to be neither aggressive nor conservative. Yielding to demands of Finance Minister Arun Jaitley and India Inc, RBI Governor Raghuram Rajan "front loaded" the repo rate cut despite worries of below normal monsoon and its impact on prices. The Governor asked banks to follow suit and pass on the rate cuts -- 0.75 percent since January -- to individual and corporate borrowers. Most bankers felt that with Tuesday’s rate cut RBI has provided space for lowering lending and deposit rates.
Public sector Allahabad Bank became the first to reduce the lending rate by 0.3 percent. RBI cut the repo rate (short-term lending rate) from 7.5 percent to 7.25, but left all other policy tools like cash reserve requirement unchanged at 4 percent and Statutory Liquidity Ratio (SLR) at 21.5 percent.
Rajan lowered projections of the economic growth as measured by GVA (gross value added) to 7.6 percent from 7.8 percent estimated in April due to global factors and likely impact of below normal monsoon. At the same time, inflation still remains a worry for the central bank as it expects price rise to remain subdued till August before rising to 6 percent by January 2016.