RBI Cuts Repo Rate: The Reserve Bank of India (RBI) has finally announced the much expecting cut down on repo rate. This cut down on central bank money lending rate is 6 per cent from 6.25 per cent. This move from RBI comes following the inflation running well below its target for consecutive quarters. The reduction in the repo rate was last observed in October 2016.
“There is scope for banks to reduce lending rates,” RBI governor Urjit Patel said. One-third of the economists polled that the RBI could cut its repo rate by 25 basis points. Two respondents out of them had listed 50 basis points that RBI would cut the rate.
“The decision of the MPC is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent while supporting growth,” the RBI said in a statement.
A major moderation in retail inflation observed in the past three months had raised the need for monetary policy easing from the RBI. Weak consumer spending followed by the demonetization late last year and lower food prices kept the inflation below 4 percent.
On the other hand, The RBI also cut reverse repo rate to 5.75 per cent from 6 per cent. Marginal Standing Facility (MSF) rate which banks borrow overnight funds from RBI was also adjusted to 6.25 per cent.
Soon after the rate cut, the RBI is forecast to stand up with the policy until 2019 to accelerate economic growth. With this anticipation on cards, Indian stocks are trading at a record high.
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