Reserve Bank of India (RBI) has reduced the policy repo rate under the liquidity adjustment facility (LAF) by 50 basis points from 7.25 per cent to 6.75 per cent with immediate effect.
It was announced in the recently released fourth bi-monthly policy of RBI since January 2015.
4th bi-monthly policy of RBI says that
- Policy repo rate under the LAF: Reduced by the 50 basis points from 7.25 per cent to 6.75 per cent.
- Cash reserve ratio (CRR): of scheduled banks has kept unchanged at 4 per cent of net demand and time liabilities (NDTL).
- Continuation of liquidity under overnight repos at 0.25 per cent of bank-wise NDTL at the LAF repo rate.
- Continuation of liquidity under 14-day term repos as well as longer term repos of up to 0.75 per cent of NDTL of the banking system through auctions.
- Continuation with overnight/term variable rate repos and reverse repos to smooth liquidity.
This surprise repo rate cut decision was taken by RBI on the basis of an assessment of the current and evolving macroeconomic situation in the country. This decision was taken following abating of inflationary pressures, full monsoon outturn, no changes in US central bank actions, and greater transmission of the RBI’s front-loaded past actions.