RBI cuts rate by 0.25 pc; may not result in lower loan rates

In a move that may not bring any relief to home and car loan seekers, the RBI today cut the interest rate by a meagre 0.25 per cent and kept cash reserve ratio (CRR) unchanged on concerns of inflation, disappointing industry and stock markets.
Reserve Bank's decision to cut interest for the third time since January as part of the annual credit policy, evoked a cautious response from Finance Minister P Chidambaram who said, "lets accept what has been done today".
The bank lowered the short-term lending (repo) rate to 7.25 per cent from 7.50 per cent, lowest since May 2011 while retaining the CRR for banks unchanged at 4 per cent.

RBI Governor D Subbarao while unveiling the annual monetary policy pegged the growth rate for the current fiscal at a conservative level of 5.7 per cent saying, "economic activity during the current year is expected to show only a modest improvement over last year, with a pick-up likely only in the second half of the year."
Speaking on the impact of the rate cut on retail and corporate loans, Pratip Chaudhuri, chairman of the country's largest lender State Bank of India said, "there is no scope (for a lending rate cut now)." His views were shared by other bankers too who ruled out the possibility of rate cut in the immediate run.

According to Subbarao: "The balance of risks stemming from the Reserve Bank's assessment of the growth-inflation dynamics yields little space for further monetary easing".
Describing the high Current Account Deficit (CAD) as "by far the biggest risk to the economy", he said, "monetary policy will also have to remain alert to the risks on account of the CAD and its financing, which could warrant a swift reversal of the policy stance".
While unsatisfied industry pitched for bolder measures from RBI in future, the Bombay Stock Exchange (BSE) declined by 160 points or 0.81 per cent following the policy announcement.