The Reserve Bank of India (RBI) on Tuesday cut its key lending rate by 25 basis points (bps) in an attempt to prop up growth in the slowing economy, drawing comfort from inflation based on the wholesale price index staying under 7%, but warned that room for further monetary easing was limited.
The apex bank kept the cash reserve ratio (CRR) unchanged in its mid-quarter monetary policy.
The rupee weakened and the BSE’s benchmark Sensex fell on RBI’s warning.
Noting that risks on account of the current account deficit (CAD) remain significant, despite a likely improvement in the fourth quarter, RBI said, “Accordingly, even as the policy stance emphasises addressing the growth risks, the headroom for further monetary easing remains quite limited.”
The Dravida Munnetra Kazhagam (DMK), a key regional ally, pulled out of India’s ruling coalition on Tuesday in protest against the government’s position on a US-backed United Nations resolution on war crimes carried out during Sri Lanka’s civil war.
The DMK is based in the southern state of Tamil Nadu, and has often pressured the Indian government to do more to protect Sri Lanka’s minority Tamil population.
The DMK has 18 seats in the lower of house of Parliament as part of Prime Minister Manmohan Singh’s coalition, which already rules in a minority. Singh’s Congress party can continue to govern with parliamentary support from two other regional parties.