Hawkish RBI cuts interest rate by just 0.25 pc

Sticking to its cautious stance, the Reserve Bank today cut the key interest rate by just 0.25 per cent to 7.25 per cent and kept the liquidity enhancing cash reserve requirement unchanged, disappointing the industry and stock market.
The RBI in its annual monetary policy statement said there would be modest improvement in the country's economic growth to 5.7 per cent in the current fiscal, as against the decade's low of 5 per cent in 2012-13.
Justifying the limited easing, RBI Governor D Subbarao said the "monetary policy action, by itself, cannot revive growth. It needs to be supplemented by efforts towards easing the supply bottlenecks, improving governance and stepping public investment".

The BSE benchmark Sensex dropped by half a per cent in the immediate aftermath of the policy announcement.
The upside risks to inflation, which cooled to a three- year low in March, "still remain significant" in the near term on suppressed inflation on the energy front, Subbarao added.
"Overall, the balance of risks stemming from the Reserve Bank's assessment of the growth-inflation dynamic yields little space for further policy easing," he said.

The decision to leave the CRR unchanged seems to have been driven by an improvement in the liquidity deficit, as the banks are now drawing around Rs 84,000 crore from the overnight window compared to Rs 1.8 lakh crore late last fiscal.

RBI expects inflation to hover broadly around the 5.5 per cent mark in the current fiscal and said it will deploy "all instruments at command" to bring it down to 5 per cent by March next year.
Referring to the Cobrapost sting on the country's top three private banks allegedly helping launder money, the RBI said the ongoing investigations have underlined the need for better regulatory compliance by banks.