RBI cuts repo, reverse repo rates by 50 bps

04 March 2009

The Reserve Bank of India today cut its short-term lending and borrowing rates – the repo and reverse repo rates - by 50 basis points each to 5.0 per cent and 3.5 per cent, respectively.
 
RBI said the decision has been taken after a review of the current global and domestic macroeconomic situation and the country's growth trajectory, which has slowed down considerably.

In an announcement made on its website late in the evening, the RBI said it was lowering the repo rate, at which it lends to banks under the liquidity adjustment facility (LAF), to 5.0 per cent from 5.5 per cent.

The central bank also announced a cut in its reverse repo rate, at which it absorbs excess cash from the banking system, from 4.0 per cent to 3.5 per cent.

RBI said it expects the reduction in the policy interest rates to further  encourage  banks to increase credit flow to productive sectors of the economy, at appropriate interest rates.

While inflationary pressures have eased significantly at around 3.36 per cent, RBI said, consumer price inflation, as reflected in various consumer price indices, is in the range of 9.85-11.62 per cent as of December 2008-January 2009, has yet to show moderation.

At the same time, there is evidence of further slowing down of economic activity. Exports registered negative growth for the four recent consecutive months, October 2008-January 2009. Overall exports growth during 2008-09 (April-January) at 13.2 per cent was significantly lower than 24.2 per cent during the same period of the last year, RBI said.