In the first policy review by the new RBI governor Urjit Patel who took over reigns from the former governor Mr. Raghuram Rajan in the month of September a cut in the repo rate by 25 basis points was announced. The rate cut has cheered the market, industry and the consumers in the festive season.
The repo rate has come down to 6.25 percent after the reduction and the reverse repo rate is adjusted to 5.75 percent while the bank rate has come to 6.75 percent.
Today’s policy review was new governor’s maiden announcement and is considered as ‘Diwali gift’ by the market and industry. This rate cut is in line with economic developments and the inflation targets and this will boost liquidity and market sentiment. Since January last year there has been five reductions in the repo rate – the rate at which the RBI lends to banks.
Inflation rate was record at 5.05 percent in the month of August which was lowest in last five months. This coming down of inflation rate gave hopes of rate cut. RBI and government have an aim to bring inflation rate to 4 percent in next five years with a lower limit of 2 percent and an upper tolerance of 6 percent.
This was RBI’s fourth bi- monthly policy statement for the year 2016-2017and was special as this was first time that the key decision regarding the interest rates was taken through the Monetary Policy Committee or the MPC.
Earlier governor Raghuram had the final say on the interest cut decisions but with this time the new RBI governor had to go by the advice of this newly set up six members MPC which has three members each from RBI and the government of India.
According to the Finance Secretary has hoped that economy will get close to 8 percent during the financial year owing to good monsoon. The farm production will increase and food output shall touch records and thus lead to lowering down of prices.