RBI cuts repo rate by 50 bps to boost growth during its monetary policy review

RBI Governor Dr Raghuram Rajan has cut repo rate by 50 bps during its first bi-monthly monetary policy review meeting for fiscal year 2016-76 today. Repo rate, the rate at which RBI lends money to banks for the short term, was cut by 50 bps to 6.5% while the Reverse Repo Rate, the rate at which RBI borrows money from banks, was increased by 50 bps to 6%. This is the lowest repo rate since 2011 and this step is expected to increase liquidity in the market and boost growth. The cash reserve ratio for banks has been kept unchanged at 4%.

The RBI has also kept statutory liquidity ratio (SLR) of scheduled commercial banks unchanged at 21.5%. Statutory liquidity ratio (SLR) refers amount that the commercial banks require to maintain with the RBI in the form of gold or government approved securities (G-Secs or bonds) before lending. Marginal standing facility (MSF) rate and the Bank Rate that is rate at which RBI lends money to domestic banks was reduced by 75 bps to 7.0%. The RBI governor also has retained its earlier projection of 7.6% GDP growth for the financial year 2016-17 and inflation at 5% for financial year 2016-17.