RBI cuts repo rate to five-year low of 6.5%; raises reverse repo

The Reserve Bank of India governor Raghuram Rajan on Tuesday cut repurchase (repo) rate by 25 basis points to five-year low of 6.5 per cent in its first bi-monthly monetary policy review for 2016-17.

Repo rate is the discount rate at which the banks borrow funds from the central bank.

The RBI left the Cash Reserve Ratio (CRR) rate unchanged at 4 per cent, but in a surprise move, it raised the reverse repo - or the rates lenders charge to the central bank - by 25 basis points to 6.0 per cent, while taking measures to ensure more availability of cash in the banking system.

The RBI had cut its repo rate by 125 basis points last year, and most analysts had anticipated a further reduction as inflation has slowed and the Budget 2016 kept borrowing and spending in check.

But banks, complaining of tight cash conditions, have only lowered their lending rates by around 60 bps, preventing the RBI's rate cuts from feeding through to the broader economy.

(With inputs from agencies)