Reserve Bank of India cut the Repo Rate by 50 Basis Points

Reserve Bank of India, the apex Indian Bank, on 17 April 2012, cut the key policy rates for the first time in the past three years. While the repo rate (the rate at which the RBI lends money to banks) was cut down by 50 basis points from 8.50 per cent to 8.00 per cent, the reverse repo rate (normally fixed at a spread of 100 basis points below the repo rate) was reduced to 7.0 per cent.

The marginal standing facility rate, which has a spread of 100 basis points above the repo rate, now stands at 9.0 per cent.

The RBI had not raised the key policy rates for two quarters though it offered relief to the banks on the liquidity front with 125 basis points CRR cut, done in two stages in January and March. The move injected 80000 crore rupees into the system. The RBI also brought in about 1.3 lakh crore rupees into the system through open market operations.

The RBI’s move to cut down key policy rates came in the wake of slumping growth which was reduced to 6.1 per cent in the third quarter of fiscal year 2011-12. Headline WPI inflation had moderated to below 7 per cent by end March although there are fears that it will flare up again. The RBI has, therefore, played it safe by projecting an inflation target of 6.5 per cent by March 2013. Its GDP projection for this year is 7.3 per cent.