RBI brings down repo-rate by 0.25%; scope for further rate cut limited

19 March, 2013

India's central bank, Reserve Bank of India (RBI) has brought down the short-term lending rate commonly known as repo-rate by 0.25% or 25 basis points. This is for the second time in a row this year that RBI slashed the repo-rate.

RBI has acted on the expected lines while bringing down the repo-rate, the rate at which the central bank lends the banks, to 7.50 % from 7.75%. This move is being seen as a positive step by the RBI in the direction of reviving the slowing industrial growth.

Along with giving this encouraging news to the industry and to those who have taken home loans or car loans, RBI has also signaled that in future it will be a quite difficult task for it to bring down the repo-rate further in the wake of high inflation.

Industry bodies have welcomed the step, but they have also have also expressed concern on the central bank's announcement that in future repo-rate reduction may not be possible.

“The RBI's decision to go in for another round of policy rate cuts was very aptly timed and was almost indispensable to revive the confidence of industry. We believe this would certainly lend some support to the flagging industrial growth. We do hope that RBI will follow this up with further rate cuts even though they have indicated that headroom for further cuts is limited,” said Naina Lal Kidwai, President, FICCI, in a statement.

Apex industry body Assocham said that the 25 basis points repo rate cut by the RBI is on the expected lines but the central bank has dampened the sentiment by stating that the headroom for further monetary policy easing remains quite limited.

“In a way, what RBI is telling us is that we must learn to live with high interest rates scenario even as the Governor Mr D Subbarao himself has expressed concern over slowdown in the economy,” said Assocham President Rajkumar Dhoot.

Industry body CII expressed hopes that the RBI would go ahead with a 50 bps reduction in the repo rate to make a significant impact on investor sentiments.