Mumbai, March 19
The Reserve Bank of India (RBI) today cut its short term lending rate or the repo by 0.25 per cent to 7.5 per cent. Repo is the rate at which the central bank lends to banks.

The step has been taken to boost growth and revive investment but the impact may not be visible immediately as several bankers are saying they would wait for current fiscal to end before passing on the benefit to home, auto and corporate loan seekers.

Although industry chambers were happy with the quantum of reduction by the RBI, they were not wholly satisfied, having wanted deeper cut.

The central bank left the cash reserve ratio (CRR) unchanged at 4 per cent.

In its commentary on the state of the economy, the central bank noted that the growth of the Indian economy was slowing but it did not have enough room for reducing rates since inflation continued to remain strong. Among other reasons, the RBI said inflation remained high due to rising prices caused by removal of administrative price mechanisms in a number of commodities.

“Banks are unlikely to respond to repo rate cut immediately as funding costs remain elevated. Seasonal improvement in liquidity in Q1FY14 could, however, see banks cut lending rates. Expect effective lending rate reductions of a 50-75 bps in 2013 -14 in response to 100 bps of repo rate cuts,” Abheek Barua, chief economist at HDFC Bank said.

While worrying about slowing growth, the central bank continued to express concerns about high inflation. “Notwithstanding the moderation in non-food manufactured products inflation, the headline inflation is expected to be range-bound around current levels over 2013-14,” RBIsaid.

“Risks on account of the current account deficit (CAD) remain significant notwithstanding a likely improvement in the fourth quarter,” the central bank added.

Industry has welcomed the cut in repo rate and hoped that the central bank would stay the path. “At a time when industrial production is showing nascent signs of an upturn, current account deficit is slated to drop on account of improved global conditions and there are expectations of a normal monsoon, it is necessary that the RBI provides the boost to green shoots of recovery,” Adi Godrej, president, CII said.

He went on to say that industry hoped for more aggressive cuts when the RBI makes its Annual Monetary Policy statement in the next six weeks.