Tuesday, April 17, 2012

RBI cuts key rates; loans to become cheaper

MUMBAI: After a gap of three years, Reserve Bank Governor D Subbarao today slashed short term lending rate by 0.50 per cent to 8 per cent, a move that will reduce the cost of home, auto and corporate loans.The reduction in the repo rate at which RBI lends to banks, has been prompted by deceleration in growth and softening of inflation. The cut is aimed at spurring growth to 9 per cent levels, seen before the global financial crisis that began in 2008, Subbarao said while unveiling the annual credit policy here. "The reduction in the repo rate is based on an assessment of growth having slowed below its post-crisis trend rate, which, in turn, is contributing to the moderation in core inflation," the Governor said. RBI has pegged the GDP growth rate for 2012-13 at 7.3 per cent. It is expected to be 6.9 per cent in 2011-12. After two consecutive cuts since January, the Governor, however, retained the cash reserve ratio at 4.75 per cent. Subbarao, however, ruled out further reduction in policy rate in the immediate future citing persistent upside risks to inflation and possible fiscal slippages driven by higher oil subsidies. It expects the inflation to be around 6.5 per cent by March 2013. "It must be emphasised that the deviation of growth from trend is modest. At the same time, upside risks to inflation persist. These considerations inherently limit the space for further reduction in policy rates," he said. The decision is likely to prompt the banks to cut lending rates for home, auto and corporate loans, experts said.

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