Prime Minister's Economic Advisory Council (PMEAC) Chairman C Rangarajan on Friday said the Reserve Bank of India's (RBI) policy decision
to cut the key interest rate by 0.25 per cent is a measured response to the current economic situation.
RBI Governor D Subbarao in the annual monetary policy review
earlier in the day cut repo rate by just 0.25 per cent to 7.25 per cent and kept the liquidity enhancing cash reserve ratio (CRR) unchanged, disappointing the industry and stock market
"It is a measured response to the current economic situation. WPI inflation has shown signs of decline and the retail inflation still remains at a high level, CAD is also high," Rangarajan said.
He added that further policy rate cut by the central bank will depend on how inflation behaves.
RBI said there would be modest improvement in the country's economic growth to 5.7 per cent in the current financial year, against the decade's low of 5 per cent in 2012-13.
"At this particular point, one has to be somehow cautious because there are many adverse factors operating in the system. Going ahead what RBI will do depends to a large extent on how inflation behaves," he said.
The overall inflation in March fell to 5.96 per cent.
The central bank said it expects inflation to hover broadly around the 5.5 per cent mark in the current financial year and will deploy "all instruments at command" to bring it down to 5 per cent by March next year.
RBI's growth projection for the current financial year is lower than Rangarajan-headed panel's growth projection of 6.4 per cent for 2013-14.With inputs from PTI