In order to push the growth rate in the face of global economic slowdown, the Reserve of India (RBI) on Tuesday (April 21) lowered its key short-term rates by 25 basis points each.  The RBI brought down the repo rate to 4.75 percent and the reserve repo rate to 3.25 percent. The repo rate is the rate at which RBI infuses cash into the banking system while reserve repo rate is the rate at which it absorbs excess cash from banks.

 

Since October last year, the RBI has cut its short-term lending rate by 425 basis points in six steps. The central bank of India said that country's economic growth will slow down to around 6 percent in the current year ending March 31, 2010 from a revised estimate of 6.5 percent to 6.7 percent for the just-ended financial year. According to RBI, it will be a big challenge to manage large government borrowing in 2009/10 in a non-disruptive manner.

 

However, the RBI assured that a mix of monetary and debt management tools will be used to sort out the forth-coming problems. According to RBI, although the wholesale-priced based inflation is expected to turn negative early in the current fiscal year, but this should not be interpreted as deflation for policy purposes. The wholesale-priced based inflation rate is expected to stand around 4 percent by the end of 2009-10, said RBI.