RBI Governor Raghuram Rajan Hikes Repo Rate to 7.50% & Reduces MSF to9.5%

Mr. Raghuram Rajan, the new RBI Governor, in his maiden policy review on Friday, hiked the repo rate by 25 basis points to 7.50%. The repo rate is increased to 7.5% from 7.25% with immediate effect. The repo rate is the rate at which banks borrow from the central bank.The move will have consequential effect down the line in the form of rise in interest rates for retail borrowers. This is a step to control inflation.

RBI reduced the marginal standing facility rate by 75 basis points to 9.5% from 10.25% with immediate efffect to tighten liquidity and arrest volatility in the foreign exchange market.

The new Governor, however, withdrew some emergency measures put in place by his predecessor to arrest the rupee slide against the dollar.

RBI reduced minimum daily maintenance of the cash reserve ratio from 99% of the requirement to 95%. There is no change in CRR. All other key rates remains unchanged.