RBI Cuts Repo Rates

BE/RBI/27/2017

RBI reduces REPO Rate to 6 per cent

RBI the Apex Body of Indian Banking system, today announced cutting the Repo rate by 25 basis points thus bring the Repo Rate to 6 per cent, the lowest since November 2010 (also bringing down the Reverse Repo Rate to 5.75 per cent).  The RBI Governor also informed that this would pave way for Banks to cut their lending rates. This was considered to be an important decision, keeping in mind the economic growth.  Further,

1. The stand of Monetary Policy Committee (MPC) in this matter was said to be neutral.
2. Falling inflation was said to be one of the reasons, for reduction in the REPO Rate.
3. Four members of the MPC voted to cut rates by 25 bps, while one voted for a 50 bps cut and one voted for leaving rates unchanged.
4. The next meeting of the MPC is scheduled on October 3 and 4, 2017.
5. On the side of inflation projections, including price increase, it is expected to end up at 3.5 per cent to 4.5 per cent in October-December this year.

CONCERNS:

• Implementation of farm loan waivers by states is likely to pave way for fiscal slippages and have a direct effect on public spending, thus resulting in inflationary spill overs.
• The other factor is States’ implementation of salary and allowances award, which is not accounted in to the projection list.
• Price pressures build up on vegetables and animal proteins are the other concern, a report added.

GOING AHEAD:

Economists feel that two more rate cuts of 25 Basis points each, may come up this year, if inflation remains low.

NOTE:

Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds. Repo rate is used by monetary authorities to control inflation.