The repo rate( short-term lending rate) has been retained at 7.25 percent, the lowest since January 2011, while cash reserve ratio is been fixed and continued to be at 4 percent.

The unchanged rates came in line with expectations of experts who felt that rupee depreciation may restrain RBI from taking any strict measures during its monetary policy review.

RBI Governor D. Subbarao said in the mid-quarter policy review, “The monetary policy stance has been informed by the evolving growth-inflation dynamics, the balance of risks as well as recent developments in the external sector.”

He specifically pointed out the decision of US Fed to reduce growth stimuli in a phased manner and expressed his concern over risks lead due to uncertain policies of systematic central banks.

There has been fund outflows in the emerging markets including India, after May 22 announcement. Since then, there has been a significant depreciation in the rupee, which is already witnessing trouble due to high current account deficit (CAD), and had touched an alarming 6.7 percent in December Quarter.

To sustain CAD to a certain level, as a near term challenge there’s a need to finance through stable flows. In its guidance, the RBI has specifically flagged risks on inflation saying, “it is only a durable receding of inflation that will open up the space for monetary policy to continue to address risks to growth.”

The status quo maintained by RBI has ruined all the hopes of interest rates cut which were highly expected by the market.

The rupee had weakened to 57.84 against the dollar, reducing up to 33 paise and had fallen to an all-time low value of 58.98 last week, against the dollar.

Chidambaram said during his address to the media that the steps taken by the govt since August have preferred effect on fiscal consolidation and inflation.

The Finance Minister P Chidambaram, who seemed to be in agreement with rating agency Fitch on reform initiatives said, “It’s not an ODI match where you expect a wicket to fall every ball or a six to be hit”. He said, after 9 months there is acknowledgement that the steps we have taken are yielding results.

He said, “A number of measures have to be taken to revise growth in the economy, fiscal consolidation tops list, followed by moderating inflation.”

“We will leave no stone unturned to achieve revenue and fiscal deficit targets and decisions on coal and gas pricing, revision in FDI limits being considered” Chidambaram said.

“On the steep fall of the Indian currency in the past few days, there is no reason for panic over rupee decline. It will regain losses suffered in last few days and find its level” he said.

This move will surely reduce the cost of home, auto and corporate loans, though.

“Monetary policy action, by itself, cannot revive growth. It needs to be supplemented by efforts towards easing the supply bottlenecks, improving governance and stepping public investment”. RBI Governor D Subbarao said, justifying the limited easing.

While slashing of repo rate will reduce the cost of borrowing for individuals and corporates, the reduction in CRR, which is the portion of deposits that banks have to park with RBI, would improve the availability of funds.

The RBI in its annual monetary policy statement said there would be modest improvement in the country’s economic growth to 5.7 percent in the current fiscal, as against the decade’s low of 5 per cent in 2012-13.

On May 3, Reserve Bank announced the large view was that it should affect 50bps cut in the Cash Reserve Ratio to ease liquidity crunch, although what bankers wanted did not appear to be clear agreement

Bank demanded a cut in the short–term to boost credit pick-up on leading rate, but the larger view was that CRR cut would make monetary transmission faster as leading rates to   high cost of deposits.

The growth which have been below the RBI target of15-16 per cent, all leading banks recently increased their term rates to attract deposits. Large banks like SBI, ICCI and HDFC Bank did not meet the media.

“We think that there should be a CRR cut now, as the main issue is of liquidity. We expect the RBI to slash CRR by 50 bps,” Chairman and Managing Directors of Bank of Baroda S S Mundra said.

The Foreign Investment Promotion Board (FIPB), headed by the Arvind Mayaram (Economic Affairs Secretary), also approved Decathlon Sports India’s offer for induction of foreign equity worth Rs 700 crore to engage in single brand retail.

“Based on the recommendations of FIPB in its meeting held on February 13, the Government has approved 12 foreign direct investment proposals amounting to Rs 2,609.27 crore approximately,” the Finance Ministry P Chidambaram said in a statement.

The biggest offer that was approved was Ahmedabad-based Claris Otsuka Ltd’s plan to hive off its infusions business into a new joint venture with FDI worth Rs 1,050 crore.

The board also approved Mumbai based Glynwed Pipe Systems’s offer to get FDI worth Rs 800 crore for making downstream investment.

The Pramod S.A.S proposal also approved, France to induct foreign equity worth Rs 29.69 crore into an Indian joint venture company, to be engaged in single brand retail trading.

The Foreign Investment Promotion Board (FIPB) clearance was also accorded to Fossil Inida and Le Creuset Trading’s for setting up of single brand retail stores as a wholly owned subsidiary of a foreign company.

The other offers approved by the board include those of Al Shukur Company for Engineering & Construction, Menarini Raunaq Pharma and Netherlands-based Aon Holdings.

The Mumbai-based Erica Healthcare’s offer to increase foreign equity was discarded by FIPB.

“It will depend upon how inflation behaves,” Dr. Rangarajan told reporters on the sidelines of an event organized by the International Chambers of Commerce (ICC) in the national capital New Delhi.

Inflation measured by the Wholesale Price Index had dropped to 6.62 per cent in the month of January. It was 7.18 per cent in December and 7.24 per cent in the month of November. In January last year the WPI inflation was 7.23 per cent.

So by taking all situations as per granted now RBI has done its part.Now banks are going to obey the new rates and a bit sudden increase in market can be expected as money flow will increase now.

RBI on Tuesday not only lowered its key policy rate (by 25 basis points to 7.75 per cent), for the first time in nine months but also offered a bonus by reducing the cash reserve ratio, the share of deposits banks must keep with the central bank, by an equal amount. So it can be said a happy hours for loan taking.

The reverse repo rate under the liquidity adjustment facility, determined with a spread of 100 basis points below the repo rate, stands automatically adjusted to 6.75 percent. RBI also made a cut in the cash reserve ratio ( CRR) by 0.25 percent to 4 percent. As a result of this reduction in the CRR, around Rs 18,000 crore of primary liquidity will be injected into the banking system.

The last cut made by the RBI was in year 2012 in the month of April. So now after nine moths RBI has made slight relaxation hope it will work for the people who are suffering from high rate of inflation.

This should for sure make demand of loans and  revive growth in the economy as per usual but at brokerage firms Morgan Stanley and Bank of America Merrill feel there is unlikely to be a meaningful drop in banks’ lending rates.

It is due to that banks are already struggling for increase deposits even they are offering higher rate of interests.

“We believe that it will be tough for banks to cut deposit rates meaningfully given the elevated loan-to-deposit (LD) ratio. Deposit growth in India has persistently stayed below loan growth, thereby taking the LD ratio to over 77%.

In fact, in the entire economic slowdown over last few quarters LD ratio has actually moved up, an unusual outcome in a slowing economy.” as told by Sumeet Kariwala and Subramanian Iyer spokes person of Morgan Stanley.

It simply means that taxes are going to be increased this year. Coming to the budget he said that budget is going to be reasonable.

There will not be any miracles in the budget he said. He told that budget is going to be a responsible one. Its our duty to look after all the people favors. Still as inflation is touching sky high we can expect that budget is going to be tough one this time. Even taxes need a reformation from a long time he said.

The tax rates that are announced in 1997 have remained and have survived four governments and four finance ministers. I believe in stable tax rates. However I must concede that there is an argument, underline the word argument, that when the economy requires, government  requires more resources, the very rich willingly should pay a little more. So be ready to face a new financial burden.