RBI cuts interest rates by 25 bps to 5-year low

RBI cuts interest rates by 25 bps to 5-year low

05/04/2016 11:31

As expected, the Reserve Bank of India (RBI) on Tuesday delivered an interest rate cut, its first in six months while signaling a continued accommodative monetary policy stance to help power growth in Asia’s third biggest economy.

The central bank lowered the repo rate by 25 basis points to the lowest level since March 2011 at 6.5 per cent from 6.75 per cent. The RBI increased the reverse repo rate by 25 basis points to 6 per cent.

Raghuram Rajan, the RBI governor indicated that further interest rate cuts will hinge upon macroeconomic developments including the monsoon rains which could dictate the near-term inflation outlook and financial developments.

“The stance of monetary policy will remain accommodative,” Rajan said in the statement.

“The Reserve Bank will continue to watch macroeconomic and financial developments in the months ahead with a view to responding with further policy action as space opens up”, he added.

The government’s vow to stick to its budget deficit goals, easing inflation and a recent reduction in the interest rates on small savings instruments have given the apex bank additional room to bolster monetary easing in a bid to buoy demand and revive investments in the country’s economy.

The RBI kept unchanged its gross-value added growth projection for FY 2017 at 7.6 per cent while inflation is expected to decelerate at a modest rate to hover around the 5 per cent mark through March 2017.

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