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RBI Reduces Repo Rate and Reverse Repo Rate by 25 Basis Points

Indian Markets were trading low after RBI announced 25 basis points rate cut. The markets were expecting rate cut but as the outlook for GDP growth has been lowered, many market players would be concerned. Indian economy has been going strong but there are many issues that could lead to lower growth.

RBI has cut the rate as per expectations on the street. The 25 BPS repo rate cut bringing it down to 5.75% and reverse repo now down to 5.5% and MSF and bank rate to 6% The stance which was neutral is now shifted to accommodate given the ongoing global trade tensions, currency devaluations in emerging economies. This is a welcome move for the market which was widely expected.

The RBI is now keen on looking to improve growth trajectory since the ongoing liquidity crisis has hurt the cost of borrowings, and further stressed the system. The distress in rural demand and near-monsoon prediction has also put some stress since it can push inflation a bit higher. The trajectory stated by RBI is at 3 – 3.1%.

The accommodative stance is now focused on the liquidity and concerns over it. The cost of borrowing is now one concern that needs to be stressed and banks would /should likely to pass the benefit to end consumer. RBI has also put a stance further that it may take necessary actions that will help to keep financial stability.

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