Reserve Bank of Indian(RBI) Governor D Subbarao has slashed short term lending rate by 0.50% to 8%, 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 percent levels, seen before the global financial crisis that began in 2008, Subbarao said while unveiling the annual credit policy in Mumbai on Tuesday. "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 percent. It is expected to be 6.9 percent in 2011-12. After two consecutive cuts since January, the Governor, however, retained the cash reserve ratio at 4.75 percent. 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 percent by March 2013.
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