The Reserve Bank of India (RBI) on 4 March 2015 reduced the repo rate by 25 basis points to 7.5 percent with immediate effect. This is the second time since January 2015 that RBI reduced the repo rate by 25 basis points.
With this, the reverse repo rate under the LAF stands adjusted to 6.5 percent, and the marginal standing facility (MSF) rate and the Bank rate to 8.5 percent.
The RBI reduced the repo rate outside the bi-monetary policy review cycle taking into account the following developments:
Why RBI acted outside the policy review cycle?
The RBI acted outside the policy review cycle because
(i) certain sectors of the economy are still weak and also there has been global trend towards monetary easing; and
(ii) the agreement on the monetary policy framework between the Union government and RBI allows RBI to go for inflation targeting.
Accordingly, the RBI seeks to bring the inflation rate to the mid-point of the band of 4 +/- 2 percent provided for in the agreement, i.e., to 4 percent by the end of a two year period starting fiscal year 2016-17.
When: 4 March 2015