New Delhi, Oct.20 : The Prime Minister, Dr. Manmohan Singh, on Monday said that India's economic growth may decelerate to 7.5 percent in 2008-09 because of the "ripple effects" of the global financial crisis and liquidity crunch.
"The financial crisis is likely to have an indirect impact on the Indian economy. We must be prepared for a temporary slowdown in the Indian economy," he said in a statement to lawmakers in parliament.
Singh further said that the recent steps taken by the government and the RBI would help ease a liquidity shortage.
Singh's statement came shortly after the Reserve Bank (RBI) reduced its key short-term lending rate (REPO) by 100 basis points with immediate effect,in a move aimed at lowering interest rates and to spur consumption to keep the economy ticking.
"In order to alleviate the pressure and, in particular, to maintain financial stability, the RBI has decided to reduce the repo rate under the liquidity adjustment facility by 100 basis points to 8% with immediate effect", the RBI said in a statement.
RBI had earlier in the month slashed the Cash Reserve Ratio (CRR) by 250 basis points unlocking Rs 100,000 crore into the financial system.
Finance Minister P Chidambaram told reporters in New Delhi that the move would be "beneficial" to borrowers and investors boost confidence in the economy. He described the RBI decision as part of a series of measures to moderate inflation and ensure economic growth.
Dr. Singh also said that he expected inflation to moderate further in the next two months, and added that the liquidity position as a result of CRR and SLR cuts has improved considerably
He said said that the Indian banking system was not directly exposed to sub-prime crisis and assured the House that no bank would fail.
Increased public spending is part of solution to keep the economy ticking, he added.