Central Bank governor Raghuram Rajan may announce a 25 basis points cut in the repo rate when he unveils the first bi-monthly monetary policy for 2016-17 on Tuesday, say experts.
Repo rate is the interest rate at which RBI provides short-term liquidity to banks, it is right now at 6.75 per cent. One basis point is equal to one-hundredth of a percentage point; the anticipated 25 basis points cut would translate to a 0.25 percentage point cut.
While retail inflation reading for February edged lower to 5.18 per cent (against 5.37 per cent last February), allowing it the wiggle room to cut the repo rate, the central bank will be watchful for the monsoon outturn and the impact of the implementation of the 7th Central Pay Commission award on inflation.
RBI may prefer to see how a small 25 basis points cut in repo rate gets transmitted into the banking system following the recent interest rate cut on small savings schemes by the government and a new lending rate regime coming into effect from April 1.
In fiscal 2015-16, the RBI had cut the repo rate cumulatively by 75 basis points in two tranches –– 25 basis points in June and 50 basis points in September.