Industry experts said that the RBI’s rate cut move will boost investments at a time when the sheen is rapidly coming off India’s growth story.
The RBI, while acknowledging that India's growth rate has slowed down considerably, however said that it had limited manouevrability for more monetary easing going forward due to the risk of inflation again spiralling out of control. Subbarao said crude oil prices will have an important effect on inflation. Inflation is currently at 6.89%, still above the RBI’s “comfortable level” of 5%.
Subbarao also said that the cut in the cash reserve ratio a month ago and the cut in repo rate on Tuesday would have a cumulative effect on the country’s growth.
“The decision (to cut the repo rate) should provide a timely boost for the economy, which is continuing to labor under the weight of a weaker investment climate, and the government’s fiscal consolidation plans,” said Simon Rubinsohn, chief economist, RICS.