Highlights: RBI's repo rate cut for first time in 9 months

Signals less room for aggressive cuts in future due to concerns over inflation

The Reserve Bank of India lowered its key policy rate as expected for the first time in nine months to support an economy set for its slowest growth in a decade, but signalled there was less room for aggressive cuts in future due to concerns over inflation.

Following are highlights from the monetary policy statement:

Policy measures

* Cuts repo rate by 25 basis points to 7.75%.

* Reverse repo adjusted to 6.75%.

* Cash reserve ratio cut 25 basis points to 4.00% effective fortnight beginning February 9.

* Marginal Standing Facility rate adjusted to 8.75%.

* Bank rate adjusted to 8.75%.

Policy stance

* Expectations of rangebound inflation in FY14 provides space, albeit limited, for policy to give greater emphasis to growth risks.

* It is critical that even as the monetary policy stance shifts further towards mitigating growth risks, the objective of containing inflation and anchoring inflation expectations is not de-emphasised.

* CRR cut to infuse Rs 18,000 crore into the banking system.

* Financing high current account deficit with volatile capital flows potentially threatens macro-economic, foreign exchange rate stability.

Forecasts

* Baseline GDP growth forecast for FY13 cut to 5.5% from 5.8% earlier.

* Baseline wholesale price index inflation projection for March 2013 cut to 6.8% from 7.5%.

* Cuts M3 projection to 13% from 14% earlier.

* Retains credit growth projection at 16%.

Inflation stance

* Monetary policy will continue to condition, contain inflation perception in 4.0-4.5% range.

* The moderation in inflation conditions provide the opportunity for monetary policy to act in conjunction with fiscal and other measures to stem the growth risks.

* Still high input costs and wages continue to impart upward pressures on prices.

* Further moderation in domestic inflation going into FY14 is likely to be muted as the correction of under-pricing of administered items is still incomplete and food inflation remains elevated.

Growth, economy

* More reforms crucial for raising potential growth path in medium term.

* Critical now to arrest loss of growth momentum without endangering external stability.

* Global growth recovery likely to be anaemic and is also fraught with significant downside risks.

* Sluggish external demand continues to inhibit improvement in services.

* New investment demand, which should be the key driver of the upturn, continues to be weak.

* While the series of policy initiatives by the government has boosted market sentiment, it will take some time to reverse the investment slowdown and reinvigorate growth.

* Investment activity has been way below desired levels and consumption demand has started to decelerate.

Banking sector

* Banks should be discerning in loan decisions, ensure adequate credit flow to productive sectors.

* Risk aversion in banking system due to concerns of asset quality constraining credit flow.