Giving relief to EMI payers Reserve Bank of India cut short-term lending rate (repo rate) by 0.25 basis points from 7.75 percent to 7.5 percent with immediate effect. The cut in the policy rate by RBI will help in lowering interest rate for individual and corporate borrowers. It will thus make home, auto and corporate loans cheaper. However, the RBI kept the cash reserve ratio (CRR) of scheduled banks unchanged at 4 percent of net demand and time liabilities.
Softer readings on inflation are expected to come in through the first half of 2015-16 before firming up to below 6 per cent in the second half, RBI Governor Dr. Raghuram Rajan, said in the Monetary Policy statement .
The fiscal consolidation programme, while delayed, may compensate in quality, especially if state governments are cooperative. Given low capacity utilisation and still-weak indicators of production and credit off-take, it is appropriate for the Reserve Bank to be pre-emptive in its policy action to utilise available space for monetary accommodation.
The need to act outside the policy review cycle is prompted by two factors: First, while the next bi-monthly policy statement will be issued on April 7, 2015 the still weak state of certain sectors of the economy as well as the global trend towards easing suggests that any policy action should be anticipatory once sufficient data support the policy stance. Second, with the release of the agreement on the monetary policy framework, it is appropriate for the Reserve Bank to offer guidance on how it will implement the mandate.
The central bank continued to provide liquidity under overnight repos at 0.25 percent 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. The RBI also continued with daily variable rate repos and reverse repos to smooth liquidity.
Consequently, the reverse repo rate under the LAF stands adjusted to 6.5 percent, and the marginal standing facility (MSF) rate and the Bank Rate to 8.5 percent with immediate effect.