RBI cuts Repo Rate by 25 basis points from 6.50% to 6.25%

Urjit Patel announced a 25 bps Repo rate (short-term lending rate charged by the central bank on borrowings by commercial banks) cut to 6.25 per cent today (dated 4.10.2016) in the wake of the RBI Monetary Policy review that took place for the first time in the presence of the Monetary Policy Committee (MPC) members of the Reserve Bank of India (RBI). The rate has been slashed now by RBI to its lowest since November 2010. So now current repo rate is 6.25.

Objective of Repo Rate

The objective of Repo is to inject liquidity in the system. If RBI wants to make it more expensive for banks to borrow money, it increases the repo rate. Similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate. When RBI reduces the Repo Rate, the banks can borrow more at a lower cost. This contributes to lowering of the rates. Once there are signs of recovery, the RBI increases the rates and moves towards a tight monetary policy.

Please note that Bank Rate and Repo Rate seem to be similar terms because in both of them RBI lends to the banks. However, Repo Rate is a short-term measure and it refers to short-term loans and used for controlling the amount of money in the market, Bank Rate is a long-term measure and is governed by the long-term monetary policies of the RBI. In broader term, bank rate is the rate of interest which a central bank charges on the loans and advances that it extends to commercial banks and other financial intermediaries. RBI uses this tool to control the money supply.

Current Other Rates:–

Reverse Repo Rate : 5.75%
Marginal Standing Facility Rate : 6.75%
Bank Rate : 6.75%

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