RBI has kept the repo rate unchanged at 6.25%

INDORE, India - Dec. 7, 2016 - PRLog -- Beyond expectations, the Reserve Bank of India has kept the repo rate (the rate at which the banks borrow from the central bank),  unchanged at 6.25% against a widely-anticipated cut of 25 - 50 basis points, while reviewing the Monetary Policy today. It is the first policy since the government's demonetization drive in November. The reverse repo rate under the LAF remains unchanged at 5.75 percent, and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 percent.

While the Cash reserve ratio (CRR) or percentage of deposits required to be maintained with the RBI is retained at 4%, incremental CRR requirement on deposits made between September 16 to November 11 has been withdrawn with effect from, December 10.

Flow of funds consequent on the government's demonetization move had prompted the central bank to move up the CRR to drain out the liquidity. However, a higher Cash reserve ratio is not favored by banks since these deposits earn no return. Government had assured that it will be lowered once fresh market stabilization scheme bonds are issued. Accordingly, the limit for market stabilization scheme bonds had been raised to Rs. 6.00 lakh crore for the fiscal from Rs. 30,000 Cr,  aiding in withdrawal of incremental Cash reserve ratio.

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