The Reserve Bank's decision to cut the key interest rate by 0.25 per cent to 7.25 per cent is a measured response to the current economic situation, Prime Minister's Economic Advisory Council Chairman C Rangarajan said on Friday.
"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.
The overall inflation in March fell to 5.96 per cent.
He added that further policy rate cut by RBI will depend on how inflation behaves.
"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," Rangarajan said.
RBI Governor D Subbarao in the annual monetary policy review today cut the key interest rate by just 0.25 per cent to 7.25 per cent and kept the liquidity enhancing cash reserve requirement unchanged, disappointing the industry and stock market.
The RBI said there would be modest improvement in the country's economic growth to 5.7 per cent in the current fiscal, as against the decade's low of 5 per cent in 2012-13.
However, RBI's growth projection for the current fiscal is lower than Rangarajan headed panel's growth projection of 6.4 per cent for 2013-14.
The central bank said it expects inflation to hover broadly around the 5.5 per cent mark in the current fiscal and will deploy ‘all instruments at command’ to bring it down to 5 per cent by March next year.
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The Reserve Bank's decision to cut the key interest rate by 0.25 per cent to 7.25 per cent is a measured response to the current economic situation, Prime Minister's Economic Advisory Council Chairman C Rangarajan said on Friday.