The Reserve Bank of India lowered its Repo Rate and Reverse Repo Rate by 50 basis points to 5% and 3.5% respectively, with immediate effect. The Repo Rate is the rate at which RBI lends money to banks and the Reverse Repo Rate is the rate at which banks park funds with RBI.
This move will help RBI to maintain enough money in the economy as it will allow banks to reduce their interest rates on various loans, thereby making credit available easily to the population, at lower interest rates.
The inflation rate, which is already low, would come down further with the rate cut. Meanwhile, the central bank has asked banks to monitor their loans and assets quality as concerns grow over non-performing assets in the banking system.
- Effects of CRR hike on Inflation seen through money multiplying effect