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3rd LD Writethru: India cuts key lending rates to boost economy

Xinhua, March 4, 2015 Adjust font size:

In a surprise move, the Reserve Bank of India (RBI) Wednesday cut the key policy rate by 25 basis points, triggering optimism of stimulating selling and buying of expensive commodities like cars and homes.

The policy repo rate under the liquidity adjustment facility is cut by 25 basis points to 7.5 percent from 7.75 percent. The reduction will come into effect immediately. This would set tones for all commercial banks in their lending policies.

The RBI has, however, kept the cash reserve ratio of scheduled banks unchanged at 4 percent of net demand and time liabilities while reducing to 6.5 percent the reverse repo rate from 6.75 percent.

"While the next bi-monthly policy statement will be issued on April 7, 2015, the still weak state of certain sectors of the economy as well as the global trend towards easing suggests that any policy action should be anticipatory once, and sufficient data support the policy stance," the RBI said.

"With the release of the agreement on the monetary policy framework, it is appropriate for the Reserve Bank to offer guidance on how it will implement the mandate," it said.

In its statement on monetary policy on Jan. 15, 2015, the Reserve Bank reduced the policy repo rate by 25 basis points and indicated that "key to further easing are data that confirm continuing disinflationary pressures. Also critical would be sustained high quality fiscal consolidation."

The move reflected growing confidence of the government to control inflation to 6 percent by the end of next fiscal year ending March 2016.

"To summarise, softer readings on inflation are expected to come in through the first half of 2015-16 before firming up to below 6 percent in the second half," RBI Governor Raghuram Rajam said.

The corporate world and stock market hailed the decision by the government, while officials said it would greatly boost the economy.

The Sensex rocketed to over 30,000 points psychological level, while the rupee rose by over 25 paises with the U.S. dollar within one hour of the announcement by RBI. Endi