The Reserve Bank of India has slashed the repo rate by 25 basis points. The new repo rate will be 7.25%. Consequently the new reverse repo rate will 6.25%. A rate cut by RBI would need to be accompanied by steps to boost liquidity. According to bankers tight cash conditions are preventing them from lowering lending rates.
In the previous monetary policy, the governor kept the rates unchanged because he wanted to assess the impact of unseasonal rains on food prices. He had also asked the banks to reduce their lending rates. RBI has cut repo rate twice this year in order to bring lending rates down but banks did not follow suit immediately. Banks alleged that tight liquidity position and high deposit rates are holding them back from cutting interest rates.
Current Rates
- Repo Rate – 7.25%
- Reverse Repo Rate – 6.25%
- Marginal Standing Facility – 8.25%
- Bank Rate – 8.25%
- CRR – 4%
- SLR – 21.5%
Tidbits
There are several direct and indirect instruments that are used in the implementation of monetary policy. They are,
- Cash Reserve Ratio (CRR)
- Statutory Liquidity Ratio (SLR)
- Refinance facilities
- Liquidity Adjustment Facility (LAF)
- Term Repos
- Marginal Standing Facility (MSF)
- Open Market Operations (OMOs)
- Bank Rate
- Market Stabilisation Scheme (MSS).
The RBI was nationalised in the year of 1 January 1949.
The bank was set up based on the recommendations of the 1926 Royal Commission on Indian Currency and Finance, also known as the Hilton–Young Commission.
