Reserve Bank of India (RBI) today cuts the Repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 6.5% in its first bi-monthly monetary policy review for the 2016-17 fiscal and kept the Cash Reserve Rate (CRR) unchanged.
Repo Rate is the rate at which banks borrow from the central bank. One basis point is one hundredth of a percentage point. The repo rate now stands at 6.5%, the lowest it has been since March 2011. With this, Home, auto and other loans are set to become cheaper.
However, the RBI cut the reverse repo, or the rate at which banks park excess funds with the central bank, to 6%, narrowing the policy corridor between the repo and reverse repo by 50 bps, bringing the marginal standing facility (MSF) rate to 7.0%. But the CRR has been kept unchanged at 4.0 per cent of net demand and time liabilities (NDTL).
The RBI also introduced number of measures to smooth-en liquidity supply so that banks can lend to the productive sectors. The policy said the average overnight borrowings by banks have increased to Rs 1,935 billion in March from Rs 1,345 billion in January.
Stating the inflation objectives to be closer to reality and price-rise will hover around the 5 per cent mark during current fiscal, Rajan reaffirmed that the monetary policy will continue to remain accommodative to address the growth concerns.
The RBI, though projected GDP growth to at about 7.6% for FY 2017. citing both upsides from a good monsoon, higher consumer demand from the 7th Pay Commission and OROP for ex-servicemen and downsides from sluggish investment.
R G Rajan welcomed the government move to amend the RBI Act to create a monetary policy committee, saying it will further strengthen the policy’s credibility. He also welcomed the government’s adherence to the path of fiscal consolidation, calling it as a commendable commitment this will support the disinflation process going forward.
In Shorts :
These changes will come into force with immediate effect.
- Repo Rate cut by : 0.25 % to 6.50 %
- Reverse repo hiked by : 0.25% to 6%
- Cash reserve ratio or CRR unchanged : 4%
- Minimum daily cash maintenance by banks with RBI cut by : 5%
- MSF rate cut by 0.75% to 7 % lower banks’ borrowing cost
- Pegs 2016-17 growth forecast at 7.6%
- Expects inflation at around 5%
- SLR : 21.25 %
So lets discuss some questions related to this post which can be asked in the upcoming exams :
1. RBI has has cut the repo rate by how much % ?
2. What is the GDP growth rate projected by RBI for the fiscal year 2017 ?
3. Expand the term CRR, NDTL and MSF ?
Courtesy : RBI News