The Reserve Bank of India (RBI) today reduced the repo rate and the reverse repo rate - by 100 basis points. It is the third rate cut by RBI in less than two months.
Repo rate, the rate at which the central bank lends to the commercial banks, has been brought down to 6.5 per cent from 7.5 per cent. This will bring down the cost of borrowing for the commercial banks.
Reverse-repo rate, the rate at which it accepts money from commercial banks has been brought down to 5 per cent from 6 per cent.
However, the central bank today kept the Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) unchanged.
Rate cuts announced by RBI Governor Duvvuri Subbarao is expected to boost Indian economy which is going through its weakest expansion in six years following the global recession.
Lower interest rates is expected to increase investment and spending by Indian companies and consumers. The decline in the stock market and a credit crunch abroad has dried up funding options for the corporates.
RBI's announcement for policy rate cuts follows the government announcement on Friday to reduce fuel prices by as much as 10 per cent. This is expected to drive down inflation from the current seven-month low of 8.40 per cent.
