The Reserve Bank of India (RBI) has cutrepo rate by 25 basis points as it announced its second bi-monthly monetary policy on June 2.
Raghuram Rajan, governor, RBI said that on the basis of an assessment of the current and evolving macroeconomic situation, it has been decided to reduce the policy repo rate under the liquidity adjustment facility by 25 basis points from 7.5% to 7.25% with immediate effect.
The Bank had held on to repo rate during the first bi-monthly policy earlier this year but has already cut rates twice this year.
This is the third repo rate cut of 25 basis points each since January 2015.
The repo rate in the beginning of the calendar year stood at 8% and has now been brought down to 7.25% after three cuts.
Industry bodies like Assocham, too, had asked for a 25 basis points cut from the RBI.
Minister of State for Finance Jayant Sinha, last week, had said that he hoped RBI would cut key interest rates as the Indian economy is improving and the macroeconomic stability provided by the government asks for a favourable responses from RBI.
Rajan, in his policy statement, said, "Banks have started passing through some of the past rate cuts into their lending rates, headline inflation has evolved along the projected path, the impact of unseasonal rains has been moderate so far, administered price increases remain muted, and the timing of normalisation of US monetary policy seems to have been pushed back. With low domestic capacity utilization, still mixed indicators of recovery, and subdued investment and credit growth, there is a case for a cut in the policy rate today."He further said that the cash reserve ratio (CRR) remains unchanged at 4%.
Source - DNA India
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