RBI Cuts Repo Rate, Sensex Surges

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Apr. 17 – The Reserve Bank of India cut its short-term lending rate by a greater-than-expected half a percentage point today, raising hopes of cheaper home, auto and corporate loans and sending the Bombay Stock Exchange’s benchmark Sensex to surge by 207 points.

The rate reduction down to 8.0 percent was the first time the RBI had cut the rate in three years, and was prompted by a deceleration in growth and the softening of inflation.

“The reduction in the repo rate is based on an assessment of growth having slowed below its post-crisis trend rate, which, in turn, is contributing to the moderation in core inflation,” the RBI Governor D Subbarao said. However, he ruled out any further reduction in policy rate in the immediate future citing persistent upside risks to inflation and possible fiscal slippages driven by higher oil subsidies.

The RBI forecasts India’s GDP to grow at 7.3 percent in the 2012-2013 fiscal, compared to the three year low of 6.9 percent seen in 2011-2012.

“The repo rate cut will provide the boost to investment as well as send a strong signal that turning around growth is of pivotal importance,” CII Director General Chandrajit Banerjee told the Times of India.

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