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RBI cuts repo rate by 50 basis point to 6%

The Reserve Bank of India on Tuesday lowered the repo rate by 50 basis points to 6 per cent from 6.5 per cent and accepted one bid for Rs 200 at the revised rate.

According to an RBI release, the bank received four bids for an aggregate amount of Rs 74.05 billion out of which one bid was accepted.

The new repo rate of 6 per cent would be the new benchmark at which RBI will manage liquidity in the system.

The last time the RBI cut the repo rate was on may 28, 2001 when it slashed it by 25 basis points to 6.50 from 6.75.

Since then the repo rate has remained unchanged even though the apex bank cut the Bank Rate in the Credit and Monetary Policy announced in October last.

RBI mops up excess liquidity in the system through daily repo auctions and injects liquidity through reverse repo auctions under the liquidity adjustment facility in case of a liquidity crunch.

UNI

Repo: Repurchase agreements or ready forward deals, a secured short-term -- usually 15-day -- loan by one bank to another against government securities. Legally, the borrower sells the securities to the lending bank for cash, with the stipulation that at the end of the borrowing term it will buy back the securities at a slightly higher price, the difference in price representing the interest.

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