The Reserve Bank of India (RBI) has giving cheers to India Inc by cutting repo rate by 25 basis points on early Thursday morning. The repo rate now stands at 7.75% from 8%, earlier.
The cash reserve ratio (CRR) remained constant at 4%.
Raghuram Rajan, governor, RBI, said, “Since July 2014, inflationary pressures (measured by changes in the consumer price index) have been easing. The path of inflation, while below the expected trajectory, has been consistent with the assessment of the balance of risks in the Reserve Bank’s bi-monthly monetary policy statements.”
Wholesale inflation for the month of December stood at 0.11% as against 0% in November and 6.4% in December of 2013. Rajan said, “Weak demand conditions have also moderated inflation excluding food and fuel, especially in the reading for December.”
Also Read: Wholesale inflation at 0.11% in December
India Inc has been pushing the RBI and Rajan towards a rate cut to boost growth and demand in the country. The near zero inflation of December only increased the chatter from the business circles.
Also Read: Near zero inflation in December raises rate cut demands
Defending his move, Rajan said, “Crude prices, barring geopolitical shocks, are expected to remain low over the year. Weak demand conditions have also moderated inflation excluding food and fuel, especially in the reading for December. Finally, the government has reiterated its commitment to adhering to its fiscal deficit target.”
Rajan assured that the following policy actions will remain consistent and in line with the policy stance that the RBI took on Thursday January 15, 2015.
Ebbing the government to take actions if the RBI has to cut rates further, Rajan concluded, “Key to further easing are data that confirm continuing disinflationary pressures. Also critical would be sustained high quality fiscal consolidation as well as steps to overcome supply constraints and assure availability of key inputs such as power, land, minerals and infrastructure. The latter would be needed to ensure that potential output rises above the projected pick-up in growth in coming quarters so as to contain inflation.”
Full text of Raghuram Rajan’s statement
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