Mumbai:After a gap of three years, Reserve Bank Governor D Subbarao on Tuesday dropped short term lending rate by 0.50 per cent to 8 per cent, a move that will reduce the cost of home, auto and corporate loans.
The reduction in the repo rate at which RBI lends to banks, has been prompted by decelaration in growth and softening of inflation.
The cut is aimed at spurring growth to 9 per cent levels, seen before the global financial crisis that began in 2008, Subbarao said while unveiling the annual credit policy in Mumbai.
The Governor said"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".
Subbarao, however, ruled out further reduction in policy rate in the immediate future citing persistent upside risks to inflation and possible fiscal slippages driven by higher oil subsidies.
"It must be emphasised that the deviation of growth from trend is modest. At the same time, upside risks to inflation persist.
He added "These considerations inherently limit the space for further reduction in policy rates".