In the first bi-monthly monetary policy meeting of this fiscal year, the Reserve Bank of India took immediate action on the government’s strongly expressed demand for rate cuts. The policy Repo Rate was cut down by 25 basis points which brought it down to 6.50 percent, the lowest since January 2011. The Cash Reserve Ratio (CRR) remains unchanged and the Statutory Liquidity Ratio (SLR) of ‘scheduled banks’ has been lowered from 21.5% to 21.25%.
To get a better understanding of these rate cuts, we need to take a closer look at the definition of these terms.
Repo Rate- It is the rate at which the RBI lends money to the commercial banks when they fall short of funds. Decreasing the repo rate is incentivising borrowing for commercial banks so that there can be a higher supply of money in the economy. It is a part of the government’s liquidity adjustment facility. [Read more…]