RBI cuts repo rate by 25 bps to 7.5%, keeps CRR unchanged at 4%
Business & Economy

RBI cuts repo rate by 25 bps to 7.5%, keeps CRR unchanged at 4%

NetIndian News Network

Mumbai, March 4, 2015

Acting for the second time within two months outside the policy review cycle, the Reserve Bank of India (RBI) today, in a surprise move, reduced the key policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points (bps) from 7.75 per cent to 7.5 per cent with immediate effect.
RBI Governor Raghuram Rajan said in a statement on monetary policy that the central bank had also decided to keep the cash reserve ratio (CRR) of scheduled banks unchanged at 4.0 per cent of net demand and time liabilities (NDTL).
He said the RBI would continue to provide liquidity under overnight repos at 0.25 per cent of bank-wise NDTL at the LAF repo rate and liquidity under 7-day and 14-day term repos of up to 0.75 per cent of NDTL of the banking system through auctions.
He said it would continue with daily variable rate repos and reverse repos to smooth liquidity.
Consequently, the reverse repo rate under the LAF stood adjusted to 6.5 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 8.5 per cent with immediate effect, he said.
The RBI had, on January 15 this year, reduced the repo rate by 25 basis points to 7.75 per cent, stating then that the momentum of inflation had significantly reduced.
However, in its Sixth Bi-Monthly Monetary Policy Statement 2014-15 on February 3, the RBI decided to keep the repo rate unchanged at 7.75 per cent, saying there had been no substantial new developments on the disinflationary process or on the fiscal outlook since January 15.
Today's decision has come just four days after Finance Minister Arun Jaitley presented his General Budget for 2015-16 to Parliament on February 28.
On February 20, the Central Government and the Reserve Bank of India (RBI) had signed a landmark agreement on Monetary Policy Framework under which the RBI will aim to bring inflation below 6 per cent by January 2016.
The target for financial year 2016-17 and all subsequent years shall be 4 per cent, with a band of +/- 2 per cent.
The agreement, made public on March 2, is a shift towards inflation targeting that Dr Rajan had been advocating for some time.

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