RBI cuts repo rates after three years and 13 successive hikes

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RBI cuts repo rates after three years and 13 successive hike
In a move aimed at spurring economic growth, the Reserve Bank of India cut repo rates by 50 basis points, surprising markets which were expecting just a 25 basis points cut.

The repo rate cuts have come in after three years and 13 successive hikes and now signals for the first time the RBI's stance to ease monetary policy. The RBI has left the CRR rate unchanged.

Repo rates are rates at which the RBI lends to banks and a cut in these rates signal a lowering of interest rates. Over the last three years, the RBI hiked the repo rates 13 times in order to tame inflation.

Now that inflation has come under control, the RBI has decided to cut rates, so as to spur economic growth.

However, the RBI remains hawkish on the course of future rate cuts, clearly indicating its worries on the inflation front. The central bank believes that inflation continues to remain sticky and there is a certain amount of surpressed inflation, particularly in fertilizer and fuel.

Crude prices have risen steadily over the last couple of months and the same has not been passed on to the consumers. Should petrol prices be raised, it could once again raise concerns on inflation.

Going forward the RBI would not only be worried about inflation, but also about the fiscal deficit, which has ballooned to an estimated 5.9% of GDP.


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