The Reserve Bank of India (RBI) in its annual policy review has cut the repo rate by 25 basis points (bps) to 4.75 per cent from the existing 5 per cent while the reverse repo has also been cut by 25 bps to 3.25 per cent from the existing 3.5 per cent. The CRR has been left untouched at 5 per cent. The GDP forecast for the FY10 has been pegged at about 6 per cent RBI cut its growth estimates for FY 09 , for the year ending 31st March,09 to 6.5 to 6.7 per cent and said that managing large Government borrowings in 2009-10 in a non-disruptive manner would be a major challenge and said , it would use a mix of monetary and debt management tools to ensure that this is done smoothly.
Large borrowings also militate against the low interest rate environment that the Reserve Bank is trying to maintain to spur investment demand in keeping with the stance of monetary policy, said RBI.
The RBI has now cut its short-term lending rate by 425 basis points in six steps since Oct. 20 as the global economic crisis has hit Asia's third-largest economy harder than expected. The RBI said wholesale-priced based inflation was expected to turn negative early in the current fiscal year, but this should not be interpreted as deflation for policy purposes. RBI projected WPI inflation would be around 4 percent at the end of 2009/10.
The RBI said a planned April 2009 review of the policy on foreign banks in India would now not go ahead until there is greater clarity regarding stability, recovery of the global financial system and better global coordination on regulation and supervision.
Market has welcomed the Credit Policy and found it to help in easy availability of credit , especially to infrastructure sector, which will see demand imporoving for core industries like cement, steel, metal and other commodities. Even GDP growth estimation of 6 per cent for FY10 has been viewed quite positive, as RBI has always been conservative in its estimation and has not been as liberal as seen in case of Finance Minisry, Planning Commission or other Government Agencies which make it look rosy for obvious reasons. Also, it is seen that with a stable government likely to get roped in the Centre, this growth can reasonably rise to 7 per cent, which will be considered more than satisfactory by the global investors.