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RBI governor Raghuram Rajan on Tuesday cut the repo rate by 25 basis points to 7.25% from 7.5% in the central bank's monetary policy review.

NEW DELHI: Reserve Bank of India (RBI) governor Raghuram Rajan on Tuesday cut the repo rate by 25 basis points to 7.25% from 7.5% in the central bank's monetary policy review. The central bank kept the Cash Reserve Ratio (CRR) unchanged at 4%.

"Strong food policy and management will be important to help keep inflation and inflationary expectations contained over the near term. Furthermore, monetary easing can only create the enabling conditions for a fuller government policy thrust that hinges around a step up in public investment in several areas that can also crowd in private investment," RBI's statement said.

"A targeted infusion of bank capital into scheduled public sector commercial banks, especially those that implement concerted strategies to clean up stressed assets, is also warranted so that adequate credit flows to the productive sectors as investment picks up," the bank said.

"Reflecting the balance of risks and the downward revision to GVA estimates for 2014-15, the projection for output growth for 2015-16 has been marked down from 7.8 per cent in April to 7.6 per cent with a downward bias to reflect the uncertainties surrounding these various risks," the bank said.

"Assuming reasonable food management, inflation is expected to

be pulled down by base effects till August but to start rising thereafter to about 6.0 per cent by January 2016 - slightly higher than the projections in April. Putting more weight on the IMD's monsoon projections than the more optimistic projections of private forecasters as well as accounting for the possible inflationary effects of the increases in the service tax rate to 14 per cent, the risks to the central trajectory are tilted to the upside," the bank said.

Meanwhile, manufacturing activity bounced back to a four-month high in May on the back of robust domestic demand, making for a strong start for the economy in the fiscal year. But the core sector index, which measures the output of eight infrastructure industries, shrank 0.4% in April from a year ago, worse than the 0.1% contraction in March.

Then again, May auto sales have risen, with No. 1 player Maruti Suzuki posting a 13.8% rise from the year earlier. However, above all this looms the monsoon, with the first rains of the June-September season delayed further.

There were, however, some tantalisingly welcome showers in parts of the country on Monday. A good monsoon will be important in keeping a lid on prices. But the rain delay has led to anxiety in India, where a heat wave has seen temperatures soaring past the 45 degrees Celsius mark in the past few weeks.

Source: economictimes.indiatimes.com

Category: Bank

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