RBI cuts repo rate by 0.5% to 4-year low of 6.75%. CRR remains unchanged at 4%

RBI cuts repo rate by 50bps to 6.75%

RBI cuts repo rate by 0.5 per cent to 4-year low of 6.75%

 Jinsy Mathew   
  • Mumbai,  September 29, 2015  
  • |  
  • UPDATED   12:52 IST

In a surprise move the Reserve Bank of India (RBI) cut the repo rate by 50 basis points (bps) to 6.75% today. The Street was widely expecting a 25 bps cut given that consumer inflation is at record lows. Cash reserve ratio (CRR) remains unchanged at 4%

Today's announcement by RBI Governor Raghuram Rajan is seen as a move to support the domestic economy which has been showing signs of a slowdown.

The major announcement was regards to GDP growth. In terms of growth, RBI expects the macroeconomic environment to be subdued. Therefore the Central Bank cut its FY16 GDP growth targets to 7.4% from 7.6%. Explaining the rationale for the downward revision, the Governor noted even though there was a modest pick-up in the growth momentum in the first half of 2015-16, the underlying economic activity, however, remains weak on account of the sustained decline in exports, rainfall deficiency and weaker than expected momentum in industrial production and investment activity. 

With regards to inflation outlook, RBI expects headline CPI inflation to firm up from its current trough and rise to around 4.5% in September as favourable base effects reverse and average 5.5% in Q3 and 5.8% in Q4 of 2015-16. 

Addressing the volatility in global markets RBI said "high volatility seems to have become the new normal in global financial markets, with sharp risk-on-risk-off swings shifting external financial conditions across the emerging world."

Through the Policy, the Governor reiterated that while the Reserve Bank's stance will continue to be accommodative but the near term focus would be to work with the Government such that the impediments to banks passing on the bulk of the cumulative 125 basis points cut in the policy rate be removed.  He added, the Reserve Bank will continue to be vigilant for signs that monetary policy adjustments which are needed to keep the economy on the disinflationary path.

The next (fifth) bi-monthly monetary policy statement will be announced on December 1, 2015.