India’s central bank, the Reserve Bank of India (RBI), has reduced its policy rate. On Friday, the Monetary Policy Committee unanimously cut the repo rate from 5.5 per cent to 5.25 per cent, effective immediately, as confirmed by RBI Governor Sanjay Malhotra.
Alongside the rate cut, RBI announced that it will inject 16 billion dollars of liquidity into the Indian market this month. This will be carried out through bond purchases and foreign exchange operations (FX swaps). The central bank’s move is expected to enhance borrowing, encourage commercial and personal investment, and stimulate economic activity.
Since February this year, RBI has cut rates four times. In February, after five years, the policy rate was reduced by 25 basis points. Further reductions of 25 basis points were implemented in April and June, bringing the repo rate to 5.25 per cent. Lower repo rates reduce lending costs at commercial banks, encouraging borrowing and facilitating investment in the economy, ultimately boosting production and growth.
Governor Sanjay Malhotra stated, “Despite a challenging global environment, India’s economy has demonstrated remarkable resilience. Inflation forecasts have provided an opportunity to remain in a growth-supporting position. Increased liquidity in the market will further stabilise our financial system.”
To increase liquidity, RBI will purchase bonds worth 1 trillion rupees and conduct dollar–rupee transactions of 5 billion dollars. Bond purchases are scheduled for 11 and 18 December, and a three-year FX swap will take place on 16 December. These measures are expected to ease borrowing, encourage investment, and support India’s long-term economic growth.
AJ