The Reserve Bank of India (RBI) in its monetary policy review on Friday announced a 25 basis points (bps) cut in repo rate to 7.5 per cent.
An increase in repo rate means the RBI will lend to the banks at a higher rate. The borrowers will have to brace themselves for higher EMIs as the banks would look to pass on this higher borrowing rate to them.
This is the first policy review of new RBI Governor Raghuram Rajan.
The central bank also lowered the marginal standing facility (MSF) rate, or borrowing rate for banks, by 75 bps to 9.50 per cent. It, however, left the cash reserve ratio (CRR) unchanged at 4 per cent.
RBI has also relaxed the banks' minimum daily cash reserve requirement to 95 per cent of deposits from 99 per cent from September 21.
In response to the announcement, the BSE Sensex crashed over 500 points to
20,138.57 at 11.28 am.
HIGHLIGHTS FROM THE REVIEW:> RBI ups repo rate by 25 bps to 7.5 per cent
> CRR left unchanged at 4 per cent
> RBI cuts marginal standing facility (MSF) by 75 basis points to 9.5 per cent
> Minimum CRR has been cut from 99 per cent to 95 per cent
RBI SAYS:
> WPI rate will be higher than projected in the rest of FY14.
> Retail inflation has been high for a number of years.
> No room for complacency on inflation despite better crop at the back of a good monsoon.
> To closely monitor growth-inflation dynamics.
> Repo rate hiked to bring down to tolerable level.
> US Fed tapering is inevitable.
> Further action may not be announced on policy day.
> Economic growth trailing below potential.
> Pace of infrastructure project completion subdued, new projects' starts remain muted.
> Next monetary policy review on October 29.
PHOTO: Reuters 
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