style="margin: 0px; text-align: justify">The Reserve Bank of India (RBI) on Tuesday lowered its main lending rate by half percentage point as it tries to boost economic growth amid some softening in inflation.
The repurchase rate (repo rate) has been reduced to 8.0% while the Cash Reserve Ratio (CRR) has been left untouched at 4.75%.
The reverse repo rate and the marginal standing facility (MSF) rate would stand reduced to 7.0% and 9.0%, respectively.
The Bank Rate stands adjusted to 9.0% with immediate effect.
First, a major risk to our growth and inflation projections stems from the outlook for global commodity prices, especially of crude oil. Although upside risks to oil prices from the demand side are limited, geo-political tensions are a concern. Any disruption in supplies is likely to lead to further increase in crude oil prices.
Second, risk emanates from the fiscal situation. Even though the Budget has proposed a reduction in the fiscal deficit in the current year, there are several upside risks. Any slippage in the fiscal deficit will have implications for inflation.
Third, the large Government borrowing budgeted for 2012-13 has the potential to crowd out credit to the private sector. If that happens, the supply response required to accelerate growth could be inhibited.
Fourth, the financing of the current account deficit will continue to pose a major challenge.
Finally, structural imbalances in protein-rich foods persist, and consequently, food inflation is likely to remain under pressure.