RBI cuts repo rate by 50 points to 6.75%

29 Sep '15

2 min read

In a significant boost for the economy, Reserve Bank of India governor Raghuram Rajan has announced a 50 basis points cut in repo rate. The repo rate now stands at 6.75 per cent. Rajan left the Cash Reserve Ratio (CRR) unchanged at 4 per cent. This is the fourth repo rate cut by the RBI since January 2015.

However, the Bank has lowered its FY16 GDP growth target to 7.4 per cent from 7.6 per cent. The RBI said inflation is expected to reach 5.8 per cent in January 2016 which is below its target of 6 per cent. It also said the focus should now shift to bringing inflation down to 5.5 per cent by FY17-end.

Governor Rajan said the RBI intends to be as accomodative as possible given its inflation targets and with this 50 basis points rate cut, he has set the ball rolling.

“We need to say that we have greater comfort on the inflation path,” Rajan said. And he also warned, “Weak monsoon continues to be risk to inflation.”

Rajan has been under pressure from the Finance Ministry as well as the industry to cut interest rate to spur economic recovery and mitigate the impact of slowing China on India.

The focus of monetary action in the near term will shift towards removing impediments in rate cut transmission by banks, the RBI said.

In a statement, the RBI cautioned that since the third bi-monthly statement of August 2015, global growth has moderated, especially in emerging market economies, global trade has deteriorated further and downside risks to growth have increased.

However, as far as India is concerned, a tentative economic recovery is underway, but is still far from robust, the RBI statement stated. (SH)

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