New Delhi: The Reserve Bank's decision to cut the key interest rate by 0.25 percent to 7.25 percent is a measured response to the current economic situation, Prime Minister's Economic Advisory Council (PMEAC) 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 percent.
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 percent to 7.25 percent 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 percent in the current fiscal, as against the decade's low of 5 percent in 2012-13.
However, RBI's growth projection for the current fiscal is lower than Rangarajan headed panel's (PMEAC) growth projection of 6.4 percent for 2013-14.
The central bank said it expects inflation to hover broadly around the 5.5 percent mark in the current fiscal and will deploy "all instruments at command" to bring it down to 5 percent by March next year.