Mumbai: The Reserve Bank of India (RBI) reduced the repo rate by 25 basis points to 6%. RBI Governor Sanjay Malhotra announced this after the Monetary Policy Committee (MPC) meeting of the apex bank. This is the second rate cut in nearly five years. This is the second reduction since May 2020, during the Covid pandemic. Earlier on February the apex bank slashed the rate by25 basis points. This is the first rate cut in this fiscal year.
Between May 2020 and April 2022, the RBI kept the repo rate steady at 4%. However, since April 2022, the central bank has been gradually increasing the policy rate, which reached 6.5% by February 2023, before maintaining it at that level for two years until now.
Repo rate is the rate at which the central bank of a country lends money to commercial banks in the event of any shortfall of funds. Usually authorities use this key lending rate as a weapon to combat inflation. If inflation rises, then apex banks increase repo rate as this acts as a disincentive for banks to borrow from the central bank. This ultimately reduces the money supply in the economy and thus helps in reducing inflation.
Also Read: 44 killed, 160 injured as nightclub roof collapses
The central bank takes the contrary position in the event of a fall in inflationary pressures. Repo and reverse repo rates form a part of the liquidity adjustment facility.
RBI Governor Sanjay Malhotra also said the MPC has also changed its policy stance from ‘neutral’ to ‘accommodative’.
The RBI also cut the SDF to 5.75 per cent, and MSF and Bank Rates to 6.25 per cent. The SDF is the lower band of the interest rate corridor, while the MSF is the upper band. The cash reserve ratio (CRR) stands same at 4 per cent and the statutory liquidity ratio (SLR) at 18 per cent.
Post Your Comments