Second Bi-monthly Policy Statement 2015-16

The Reserve Bank of India in its second bi-monthly policy announced on Tuesday has reduced the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 7.5 per cent to 7.25 per cent with immediate effect

Repo Rate (short-term lending rate)- 7.25% (Decreased 25 Basis Points) (1% is equivalent to 100 basis points)

CRR (the amount of cash banks must keep with RBI)- 4.0% (Unchanged)

Other Rates

Reverse Repo Rate (short-term borrowing rate) - 6.25%

Statuary Liquidity Ratio (SLR) - 21.5% (Unchanged)

Marginal Standing Facility (MSF) - 8.25% (Unchanged)

Bank Rate (BR) - 8.25% (Unchanged)

It has decided to continue to provide liquidity under overnight repos at 0.25 per cent of bankwise NDTL at the LAF repo rate and liquidity under 14-day term repos as well as longer-term repos of up to 0.75 per cent of NDTL of the banking system through auctions and continue with overnight/term variable rate repos and reverse repos to smooth liquidity.
The RBI expects Current Account Deficit (CAD) at 1.5% of Gross Domestic Product (GDP) in the financial year 2015-16.
The RBI also expects inflation to start rising to 6% by January 2016.

Impact of RBI Rate cuts

The RBI’s rate cuts does not necessarily mean that the borrowers benefit immediately. Your banker has to reduce its Base Lending rate (minimum lending rates). If your bank reduces the base rate then only you can see your Loan EMIs falling.
These rate cuts will not have any impact on Fixed rate home loans or Fixed rate consumer loans. The rate of interest is fixed with respect to fixed loans.

So, higher the repo rate higher the cost of short-term money and vice verse. If the repo rate is low, banks have to pay lower interest amount on their borrowings. This in turn enable them charge lower interest rates on the loans taken by us. Lower repo rate can also strengthen positive momentum in the economy. These are the main reasons for markets turning ecstatic during last few days.

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