RBI Slashes Key Policy In Its Sixth Monetary Policy Review Meet

In a relief to India Inc, the Reserve Bank of India has reduced the key policy in the sixth monetary policy review meet of FY15. Governor Raghuram Rajan has slashed repo rate by 25 basis points from 8% to 7.75%.

On the other hand, the cash reserve ratio has been maintained at 4% of the net demand and time liabilities.

“Crude prices, barring geo-political shocks, are expected to remain low over the year. Weak demand conditions have also moderated inflation excluding food and fuel, especially in the reading for December. Finally, the government has reiterated its commitment to adhering to its fiscal deficit target,” said Rajan in his speech.

The governor explained that because of these recent developments, the momentum of inflation has declined considerably. “Households’ inflation expectations have adapted, and both near-term and longer-term inflation expectations have eased to single digits for the first time since September 2009. Inflation outcomes have fallen significantly below the 8% targeted by January 2015. On current policy settings, inflation is likely to be below 6% by January 2016,” added Rajan.

It should be noted that the apex bank has kept the reverse repo rate 6.75% while the bank rate has been fixed at 8.75%. The government hinted at another plausible rate cut if the disinflationary momentum continued in the new fiscal year​.