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Today, Reserve Bank of India, Governor Raghuram Rajan, tweaked policy in an unprecedented way by reducing repo rates, at which banks borrow and increasing reverse repo rates, the rates banks get while depositing excess liquidity with Reserve Bank of India (RBI).
It is a well calculated and wise move. Biggest beneficiaries initially would be Indian banks, both private and state owned ones. This comes at a time, when banks are suffering with high levels of non-performing loans.
With today’s move, Repo rates stand at 6.5%, while reverse repo got increased to 6%, reducing the corridor by 50 basis points. Cash reserve ratio (CRR) was left unchanged.
While speaking at press conference RBI governor said that the move would simultaneously reduce lending rates to business, without creating undue pressure on banks.
With today’s move RBI has now reduced rates by 125 basis points in last one year.
India’s benchmark stock index is down more than 1% post-decision as much more was expected. Indian Rupee gave up gains and now down more than 0.35% today, trading at 66.3 per Dollar.
