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Raghuram Rajan sees the light; RBI cuts repo rate by 50 bps to 4-year low

Raghuram Rajan sees the light; RBI cuts repo rate by 50 bps to 4-year low - The Reserve Bank of India on Tuesday reduced its key repo rate by a bigger-than-expected 50 basis points (bps) to 6.75%, with inflation running low and the economy in threat of slowing down.

The cash reserve ratio (CRR) was kept unchanged at 4%.

The RBI said, "Since our last review, the bulk of our conditions for further accommodation have been met. The January 2016 target of 6 per cent inflation is likely to be achieved. In the monetary policy statement of April 2015, the Reserve Bank said that it would strive to reach the mid-point of the inflation band by the end of fiscal 2017-18. Therefore, the focus should now shift to bringing inflation to around 5% by the end of fiscal 2016-17."

The economy grew at a slower-than-expected annualized rate of 7 per cent in the April-June quarter. That is faster than China, but less than government's target of 8 to 8.5 per cent for the year ending in March.

Finance minister Arun Jaitley had been one of the biggest disciples of a rate cut and had constantly been indicating towards the comforting factors that favor a fourth rate cut by RBI this year.