The Reserve Bank of India (RBI) on Thursday reduced the repurchase (repo) rate by 25 basis points for the third time in a row to its nine-year low of 5.75 per cent. Last time, the repo rate was hiked to 5.75 per cent on July 27, 2010. It was, in fact, hiked by 50 basis points - 25 bps each on July 2, 2012 and July 27, 2010 -in a month to that level.
The RBI reversed the trend in the repo rate in January 2014. Since then, the central bank has reduced rates 10 times (and raised briefly twice) by a massive 2.25 per cent, down from 8 per cent to 5.75 per cent now.
In the pack of 25 nations that largely includes Asian countries (excluding Japan), developed economies such as United States and United Kingdom and represent countries like Australia, Brazil and Canada, India is the only country where central bank has adopted a dovish stand on the monetary policy. Respective central banks in most of these countries have hiked policy rates in last 12 months (data until April 2019). The remaining ones saw no change in their policy rates over this period and India was the only one observing a fall, taking today's reduction into consideration.
Keeping the policy rates unchanged or increasing them has undeniably hit the bank credit in many of these countries. Bank credit to the private non-financial sector (in US billion dollars) in countries such as Russia and South Africa has declined 7.1 per cent and 9.2 per cent, respectively between December quarters of 2017 and 2018. Russia saw a 50 bps rise in its policy rates in the past twelve months as compared to 25 bps increase in that in South Africa. In India, the bank credit to the private non-financial sector grew from $1,352 billion in Q4 2017 to $1,414 billion in Q4 2018.