The Reserve Bank of India (RBI) has decided to cut its key policy rate, or the repo rate, by 25 bps to 6.25 per cent. New Governor Urjit Patel, who took over a month ago from Dr Raghuram Rajan, announced his first monetary policy.
There was no change in the cash reserve ratio (CRR) or the amount of money parked with the central bank as a percentage of bank deposits at 4 per cent. The decision to cut was taken after a two-day deliberation by the newly formed Monetary Policy Committee. The committee has three external members and three internal members from the RBI including the Governor. All 6 members voted in favour of a cut.
Monetary and Liquidity Measures
On the basis of an assessment of the current and evolving macroeconomic situation at its meeting today, the Monetary Policy Committee (MPC) decided to:
- Reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 6.5 per cent to 6.25 per cent with immediate effect.
- Consequently, the reverse repo rate under the LAF stands adjusted to 5.75 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 6.75 per cent.
The decision of the MPC is consistent with an accommodative stance of monetary policy in consonance with the objective of achieving consumer price index (CPI) inflation at 5 per cent by Q4 of 2016-17 and the medium-term target of 4 per cent within a band of +/- 2 per cent, while supporting growth.