The Reserve Bank of India in its latest monetary policy review on Wednesday kept the repo rate and reverse repo rate unchanged on expected lines. The apex bank kept the repo rate intact at 6 percent. However, the RBI lowered the GDP growth estimate cut to 6.7 percent. Earlier the projection was the economy will grow at a 7.3 percent.
With the growth rate cut and status quo on the interest rate, the pressure from the government officials on the central bank is only likely to heighten. All eyes were on the RBI to see whether the central bank cuts key lending rates on Wednesday.
Industry bodies had demanded a cut in rates while India’s biggest lender State Bank of India had speculated the status quo to maintain.
Repo rate is the rate at which the RBI lends money to commercial banks when they require funds. RBI’s lending to banks is usually done through repos (repurchase agreements) for short term lendings against securities. Reverse Repo Rate is the rate at which the RBI borrows money from commercial banks in India. It is used to control liquidity in the market.
In the last monetary policy review, the RBI slashed the repo rate by 25 basis points to 6 per cent. One basis point represents 0.01 per cent. It was the first cut after a period of 10 months. During August, though, the retail inflation jumped to a then five-month high at 3.36 per cent and in July the consumer price index (CPI) was recorded at 2.36 per cent.