Zee Media Bureau
New Delhi: With inflation and fiscal deficit under control, the Reserve Bank of India on Tuesday cut its policy rate by 0.25 percent, paving way for cheaper home and auto loans as also lower cost of funds for corporate borrowers.
Rajan, who had focused on quelling inflation since taking office in September 2013, lowered the benchmark repo rate to 7.25 percent from 7.50 percent.
As a result the reverse repo rate, the rate at which the central bank drains excess liquidity from the banking system, also moved down by 25 basis points to 6.25 percent.
The RBI, however, has decided to keep the cash reserve ratio (CRR), the portion of deposits which the banks are required to have in cash with the central bank, unchanged at 4.0 percent.
Announcing the second bi-monthly monetary policy this fiscal, Rajan said that "with low domestic capacity utilisation, still mixed indicators of recovery, and subdued investment and credit growth, there is a case for a cut in the policy rate today".
Since the RBI held rates steady at its last policy review in early April, consumer price inflation has eased to a four-month low of 4.87 percent, in line with the RBI`s mid-term targets.
The wholesale price index based inflation also hit a new low of (-)2.65 percent in April, as deflationary pressures continued for the sixth month.
The government has also been able to rein in fiscal deficit within 4 percent of GDP in 2014-15.
RBI Governor Raghuram Rajan had snipped the repo rate twice this year, in January and March, by 0.25 percent each, but left it unchanged at the bi-monthly monetary policy review on April 7.
With Agency Inputs
