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Raghuram Rajan
The Reserve Bank of India on Tuesday cut its policy rate by 0.25 percent while unveiling its first bi-monthly policy review for this fiscal, paving way for cheaper home and auto loans.

The Reserve Bank of India on Tuesday cut its policy rate by 0.25 per cent while unveiling its first bi-monthly policy review for this fiscal, paving way for cheaper home and auto loans.

Raghuram Rajan lowered the benchmark repo rate to 6.50 per cent, the lowest since January 2011.

As a result the reverse repo rate, the rate at which the central bank drains excess liquidity from the banking system, also moved down by 25 basis points to 5.50 per cent.

The RBI, however, has decided to keep the cash reserve ratio (CRR), the portion of deposits which the banks are required to have in cash with the central bank, unchanged at 4.0 per cent.

The changes were carried out in the monetary policy for the current fiscal announced by Reserve Bank of India (RBI) Governor Raghuram Rajan in Mumbai on Tuesday

RBI Governor Raghuram Rajan had left the key interest rate unchanged citing inflation risks and growth concerns.

Among the two key instruments to directly regulate the money flow in the system, the cash reserve ratio (CRR), which is the quantum of liquid funds against deposits which commercial banks have to hold, has been left unchanged at 4 percent.

But the minimum daily maintenance of CRR has been cut to 90 per cent from 95 per cent.

Similarly, the statutory liquidity ratio, or the value of specified securities which commercial banks have to subscribe to, stands at 21.25 per cent, effective April 2 onward.

The central bank had last cut its short-term lending rate in September by 50 basis points to 6.75 per cent. Cumulatively, 2015 saw the monetary authority cut the repo rate by 1.25 per cent.

“Inflation has evolved along the projected trajectory and the target set for January 2016 was met with a marginal undershoot,” Rajan said in his policy statement, adding that retail inflation was expected to decelerate modestly and remain around 5 percent in this fiscal.

“After two consecutive years of deficient monsoon, a normal monsoon would work as a favourable supply shock, strengthening rural demand and augmenting the supply of farm products that also influence inflation,” he said.

“On the other hand, the fading impact of lower input costs on value addition in manufacturing, persisting corporate sector stress and risk aversion in the banking system, and the weaker global growth and trade outlook could impart a downside to growth outcomes going forward,” he said.

He said the growth projection for 2016-17 was being retained at 7.6 per cent.

With Inputs From IANS