The Reserve Bank of India (RBI) today reduced the policy repo rate under the liquidity adjustment facility (LAF), by 25 basis points, from 7.5 per cent to 7.25 per cent with immediate effect.

The reverse repo rate under the LAF, also stands adjusted to 6.25 per cent. The Marginal Standing Facility (MSF) rate and the Bank Rate, both stand adjusted to 8.25 per cent with immediate effect.

The cash reserve ratio (CRR) of scheduled banks has however been retained at 4 per cent of their net demand and time liabilities. The baseline GDP growth has been projected at 5.7 per cent and the WPI inflation is expected to be range-bound around 5.5 per cent during the current fiscal.

In its Monetary Policy Statement 2013-14, the RBI has stated that the balance of risks stemming from the Reserve Bank's assessment of the growth-inflation dynamic, yields little space for further monetary easing.

Speaking on the statement, RBI Governor D Subbarao said that the monetary policy action, by itself, cannot revive growth and it needs to be supplemented by efforts towards easing the supply bottlenecks, improving governance and stepping public investment.

He also said that upside risks to inflation are still significant in the short term in view of supply imbalances, correction in administrative prices of fuel and rising minimum support price for crops.

He stated that given these factors, monetary policy cannot afford to lower its guard against the possibility of resurgence in inflation pressures.

The RBI Governor also warned that the biggest risk by far to the Indian economy stems from Current Account Deficit (CAD).

Interest rates on home and car loans will ease following RBI’s decision to cut key policy rates.

The next mid-quarter review of Monetary Policy for 2013-14 will be announced on June 17, 2013.