2016 RBI Monetary Policy - Reserve Bank of India(RBI)Cuts Repo Rate by 25 bps to 6.25% Tuesday Oct 04,2016

The Reserve Bank of India on Tuesday Oct 04,2016 cut the repo rate by 25 basis points, or one quarter of 1 per cent, raising hopes of a revival of bank credit.

All six members of the newly appointed Monetary Policy Committee (MPC) voted in favour of the rate cut from 6.5 per cent to 6.25 per cent, which comes at the start of the October-March busy season. 

The policy rate, or the rate at which banks borrow from the RBI, had been on hold for nearly six months. The previous cut came in early April, from 6.75 per cent to 6.50 per cent. 

The panel, headed by RBI Governor Urjit Patel, cited the downward shift in the momentum of food inflation and the government’s measures to cool food inflation pressures as contributory factors.

The RBI’s fourth bi-monthly monetary policy review was RBI Governor Urjit Patel’s first as Governor

The repo rate cut and the downward adjustment in small savings rates are expected to spur banks to cut deposit and lending rates.

 ICICI Bank responded first with a rate cut of 5 basis points.

Note

Since January 2015, the RBI has cut the repo rate six times. India’s retail inflation has touched a five-month low of 5.05 percent in August, triggering hopes of a rate cut.

The RBI and the government have set a retail inflation target of 4 per cent for the next five years with an upper tolerance level of 6 percent and lower limit of 2 per cent.