RBI cuts repo rate by 25 basis points to 7.25%, CRR remains unchanged at 4%

RBI Updates Subba Rao

As expected by Economists and Financial Analysts the Repo rate (the rate at which the RBI lends to banks) is cut to 7.25%, from 7.5% earlier and all other rates like the reverse repo (6.5%), the rate which the RBI pays banks for depositing excess funds, the penal interest rate and the bank rate, fall by similar amount. But the Cash Reserve ratio remains unchanged at 4% which means that the 10-year government bond yield has gone up by 5 bps to 7.77%.

 

Nifty which was trading at 5510 on April 15th,  expecting favorable announcement from RBI, seen a good rally from the said date to 02nd May (the day before RBI announcement) which gained almost 500 points and closed at 5999.35. Following the Announcement today, Markets remained volatile suggesting that the RBI Credit Policy announcements made by Subba Rao were below the expectations.

 

Bank Nifty and Realty being the most affected saw a fall in the stock prices post announcement of the credit policy.

 

The commodity market saw a fall in the Wholesale Price Index to 5.96% in March 2013 from 7.69% in March last year and the Index of Industrial Production is at 0.6%, down from 4.3% in February 2012.

 

“Keeping in view the domestic demand-supply balance, the outlook for global commodity prices and the forecast of a normal monsoon, WPI inflation is expected to be range-bound around 5.5 per cent during 2013-14, with somse edging down in the first half on account of past policy actions, although there could be some increase in the second half, largely reflecting base effects,” said RBI.

 

With global growth unlikely to improve significantly from 2012, growth in services and exports may remain sluggish. Accordingly, the baseline GDP growth for 2013-14 is projected at 5.7% – RBI

 

 

Updated Current Policy Rates, Reserve Rates, Lending/Deposit Rates:

Bank Rate 8.5%
Reverse Repo Rate 6.5%
Marginal Standing Facility Rate 8.5%
CRR 4%
SLR 23%

 

 

Dilip Kumar

+Dilip Kumar (Author and Editor of The Tax Info) is a Chartered Accountant from Hyderabad, Loves Blogging on Tax related matter.

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