RBI reduces Repo

By Vijay Kumar

RBI Governor Raghuram Rajan yesterday announced the decision to:

• reduce the policy repo rate under the Liquidity Adjustment Facility (LAF) by 50 basis points from 7.25 per cent to 6.75 per cent with immediate effect;

• keep the Cash Reserve Ratio (CRR) of scheduled banks unchanged at 4.0 per cent of Net Demand and Time Liability (NDTL);

• continue to provide liquidity under overnight repos at 0.25 per cent of bank-wise NDTL at the LAF repo rate and liquidity under 14-day term repos as well as longer term repos of up to 0.75 per cent of NDTL of the banking system through auctions; and

• continue with daily variable rate repos and reverse repos to smooth liquidity.

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 7.75 per cent.

Welcoming the decision, Finance Minister Jaitley said, this action also signals that the RBI is able to provide policy support to the real economy and help its recovery; the Government looks forward to the transmission of these cuts to the rest of the economy and will work to facilitate this transmission, including by reviewing the framework of small savings; the rate cut, combined with actions taken and planned by the Government, will help boost confidence and investment, and help realize the economy's medium-term potential growth rate.