India cuts rates to boost growth The Reserve Bank of India on Friday cut the repo lending rate by 25 basis points to 7.25 per cent, the third rate reduction since January, against a backdrop of disappointing economic growth and a gradual slowdown in inflation. The decision was in line with expectations, with 37 of 42 economists surveyed in a Reuters poll forecasting this result. IN Indian Economy The cash reserve ratio - the proportion of deposits banks are required to hold - was held at 4 per cent, also as expected. In its statement, the bank said its decision was partly driven by the slowdown in the Indian economy. Growth has slowed sharply from 9.2 per cent in the fourth quarter of the 2010-11 financial year to 4.5 per cent in the quarter ended in December, and recovery is not expected for some months at least. Easing inflation has allowed the bank to take action in loosening monetary policy. In March, inflation as measured by the Wholesale Price Index fell to 6 per cent, the lowest level for three years, almost reaching the RBI's tolerance threshold. But retail inflation remains high. In a statement on Thursday evening, ahead of the monetary policy decision, the RBI said: "In view of macro-financial risks that stay significant, headline inflation remaining above the threshold and consumer price inflation remaining high, the space for action for 2013-14 remains very limited." Another big concern for the economy is the current account deficit. Despite some growth in exports, the RBI expects the current account deficit to GDP ratio to come in at about 5 per cent for the fiscal year just ended in March, a level which can be difficult to finance in the long term. "The decision is as expected, because inflation has been below trajectory and growth has slowed more that expected," said A Prasanna, chief economist at ICICI Securities. But I think what they're trying to point out is that there is an upside [risk] to inflation, though commodity prices have been coming off. And the RBI is concerned that the factors inhibiting growth are more to do with the government and road blocks on several projects, plus the current account deficit is much higher than could be comfortably financed. Mr Prasanna said there was little room for further cuts in coming months but if commodity prices did not rebound and inflation continued to trend lower, there was a chance the RBI could make one further rate cut in July.