First repo rate cut in 3 years

The RBI Governor, Dr D. Subbarao, cut the key repo rate by 50 basis points to 8 per cent while announcing the annual monetary policy. This is the first cut in three years, after 13 hikes in the repo rate. The cut in repo rate comes even as the economy has been slowing over the last year. GDP growth decelerated to 6.1 per cent in the third quarter of last year, from 7.7 per cent in the first quarter. Headline inflation had moderated to below 7 per cent by end March, from about 9.36 per cent. The RBI has projected an inflation target of 6.5 per cent by March 2013. Its GDP projection for this year is 7.3 per cent.

                                                Consequent to the repo cut, other linked rates adjust themselves accordingly. The reverse repo rate (the rate at which banks the RBI borrows from banks) is now 7 per cent while the MSF rate (at which banks can borrow for emergency requirements) is now 9 per cent. The cash reserve ratio (CRR) remains unchanged at 4.75 per cent. The RBI has decided to raise the borrowing limit of banks under the MSF from one per cent to two per cent of their net demand and time liabilities (NDTL).

In a set of customer-friendly steps, the RBI announced that banks will no longer be allowed to levy penalties or charges for prepayment/foreclosure of home-loans.