New Delhi: The Reserve Bank of India (RBI) today cut repo rate by 50 basis points (bps) to 6.75% to help support the domestic economy.
This comes at a time when consumer inflation is at a record low.
A rate cut is being seen as a key trigger to boost investment demand in an economy where credit growth has dipped to a multi-year low.
The RBI, however, left the Cash Reserve Ratio (CRR) unchanged at 4 per cent.
The Central bank also cut the GDP forecast to 7.4 per cent for the current fiscal to 7.6 per cent while projecting retail inflation at 5.8 per cent for January.
The RBI has already eased the policy rate by 75 bps so far this year.
Consequently, the reverse repo rate adjusted to 5.75 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 7.75 per cent.
RBI Governor Raghuram Rajan said: "Further monetary policy accommodation will be conditioned by the abating of recent inflationary pressures, the full monsoon outturn, possible Federal Reserve actions and greater transmission of its front-loaded past actions."
Defining repo rate and basis point: Repo rate is the rate at which the Central bank lends money to commercial banks in the event of any shortfall of funds | One basis point is equal to one one-hundredth of one percentage point (0.01%). Therefore, 100 basis points would be equivalent to 1%.
Looking forward, he said inflation is likely to go up from September for a few months as favourable base effects reverse.
"The outlook for food inflation could improve if the increase in sown area translates into higher production. Moderate increases in minimum support prices should keep cereal inflation muted, while subdued international food price inflation should continue to put downward pressure on the prices of sugar and edible oil, and food inflation more generally," he said.
Taking all this into consideration, he said, inflation is expected to reach 5.8 per cent in January 2016, a shade lower than the August projection.
In a bid to give boost to housing sector, the RBI proposed to reduce the risk weights on affordable housing applicable to lower value but well collateralised individual housing loans.
At present, the minimum risk weight applicable on individual housing loans is 50 per cent, it said.
