RBI eases rates, trims repo rate by 25bps to 7.25%

RBI reduced the Repo Rate (the rate at which RBI lends money to commercial banks), to 7.25% from 7.5% while keeping the CRR (Cash Reserve Ratio- the portion of deposits that banks require to maintain with RBI) unchanged at 4%.
Monetary Measures

  • Repo rate: reduction by 25 bps from 7.5% to 7.25%
  • Reverse repo rate: 6.25% (100 bps below repo rate)
  • MSF (Marginal Standing facility) rate: 8.25% (100 bps above repo rate)
  • Bank rate: 8.25%
  • Cash reserve ratio retained at 4% of NDTL (Net Demand and Time Liabilities)

Impact of repo rate cut:

  • Reduced cost of overnight borrowing for commercial banks from RBI.
  • Lead to reduced lending rates, helping in better macroeconomic sentiments.
  • RBI has invoked banks to pass the impact of above to end users as banks hold to factor the benefit.

Why a Need of reduction in repo rate ?

  • In order to continue to address risk towards growth.
  • Insistence by Government and industry to lower borrowing costs to spur economic growth, estimated to have slumped to 5% in the year ended March 31, 2013.
  • Guard against the risks of inflation pressures re-emerging and adversely affecting inflation expectations.
  • Manage liquidity to ensure adequate credit flow to the productive sectors of the economy.



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