RBI cuts Bank Rate by 50 bps to 9 per cent

The Reserve Bank of India (RBI) today announced a 50 basis point reduction in the Bank Rate to 9.00 per cent from 9.50 per cent, effective 17 April.

RBI said the adjustment in the Bank Rate is as per the monetary policy statement of 17 April 2012.

All penal interest rates on shortfall in reserve requirements, which are specifically linked to the Bank Rate, also stand revised accordingly, RBI said in a notification today.

Section 49 of the Reserve Bank of India Act, 1934 requires the central bank to make public from time to time the standard rate at which it is prepared to buy or re-discount bills of exchange or other commercial paper eligible for purchase under that Act.

Being the discount rate, the Bank Rate should technically be higher than the policy repo rate.

The Bank Rate has, however, been kept unchanged at 6 per cent since April 2003. This was mainly for the reason that monetary policy signalling was done through modulations in the reverse repo rate and the repo rate under the Liquidity Adjustment Facility (LAF) till 3 May 2011, and the policy repo rate under the revised operating procedure of monetary policy from 3 May 2011 onwards.