RBI slashes Repo Rate !

RBI slashes Repo Rate

Reserve bank of India cut down the repo rate to 50 basis points. It is the first time that RBI cut down the rate in the last 3 years. Repo rate is the rate at which RBI lends money to the banks. And now it becomes 8 percent from 8.5 percent. This RBI action will raise industrial growth in India and it will lead to economic development. RBI governor D. Subbarao said that along with the decrease in repo rate, the reverse repo rate also drop to 7 from 7.5 percent.

New rates and ratios

No: Rates Old value New Value
1 Bank rate 9.5 9
2 Repo rate 8.5 8
3 Reverse repo rate 7.5 7
4 Marginal Standing Facility Rate 9.5 9
5 Cash Reserve Ratio 4.75 4.75
6 Statutory Liquidity Ratio 24 24

Reverse repo rate drop reduces the cost of accessing funds for lending institutions. The drop in these rates will increase money supply and it will favour commercial banks to lend money instead of parking their funds with RBI. Marginal standing facility rate which is the rate at which banks could borrow from RBI one percentage point above repo rate is also drop to 9 from 9.5 per cent.

These changes can make an impact on the sensex of the Bombay stock exchange (BSE). And the rate changes will also lead to economic stability and liquidity. RBI unchanged the cash reserve ratio at 4.75%, which is the rate at which banks must hold fund with RBI. The decreasing rate of money value helps the RBI to slash down the policy rates.

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