The Reserve Bank of India (RBI) cut the main interest rate that is the Repo Rate by 0.25 percent. Repo rate is the rate at which the Reserve Bank of India (RBI) lends money to commercial banks in the event of any shortfall of funds.
With this change RBI introduced some measures in order to make liquidity supply even. These measures will help banks to offer credits to the productive sectors.
The RBI had cut its Repo Rate by 125 basis points last year, and most analysts had anticipated a further reduction as inflation has slowed down.
According to RBI Governor, Raghuram Rajan, the reduction in the policy rate by 0.25 percent will help in strengthening the given weak private investment in the face of low capacity utilization.
Because of this reduction, the Repo Rate has come down to 6.5 percent. Though, the Rate cut was consistent to the expectations, the response from the Stock Market was negative. As a result the BSE index, Sensex came down nearly 300 points.
According to the policy the average overnight borrowings by banks have increased to Rs 1,935 billion in march from Rs 1,345 billion in January.
RBI also proposed to redefine bank branches and permissible methods of outreach and according to the Policy Documents, it will also issue a discussion paper to go ahead on the differentiated banking and look into the introduction of custodian banks and wholesale banks.
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