RBI cuts repo rate by 25 bps to 6.50%

RBI Governor Raghuram Rajan cut the policy rate to 6.5% taking note of falling retail inflation and the government's commitment to fiscal discipline.

The first monetary policy of the new fiscal announced a cut of 25 basis point in repo rate, no change in the cash reserve ratio.  But in a surprise move, RBI also raised the reverse repo - or the rates lenders charge to the central bank - by 25 basis points to 6.0 percent, while taking measures to ensure more availability of cash in the banking system.  The RBI forecasts the economy to grow at 7.6 per cent in Financial Year 2017. The central bank has maintained its FY17 CPI inflation target at 5 per cent.  The RBI had cut its repo rate by 125 basis points last year.  Banks though complaining of tight cash conditions, have only lowered their lending rates by around 60 bps, preventing the RBI's rate cuts from feeding through to the broader economy.  More important at this juncture is to ensure that current and past policy rate cuts transmit to lending rates to benefit the common man.