City
Epaper

Nothing sacred about 25 bps: RBI Governor on interest rate cut

By IANS | Updated: August 7, 2019 15:20 IST

Marking a paradigm shift, the Reserve Bank of India (RBI) on Wednesday bid adieu to the conventional practice of lowering or raising interest rates in multiples of 25 basis points (bps), insisting there was nothing sacred about the figure.

Open in App

The central bank slashed its repo, or short-term lending rate for commercial banks, by 35 basis points (bps) from 5.75 per cent to 5.40 per cent to boost growth.

RBI Governor Shaktikanta Das said the RBI's Monetary Policy Committee (MPC) found 35 bps sufficient for the time period, as 25 bps would have been "inadequate" and 50 bps would have been "excessive".

Das had dropped a hint on this possible move in a speech earlier in the year.

"A thought comes to my mind that if the unit of 25 basis points is not sacrosanct and just a convention, monetary policy can be well served by calibrating the size of the policy rate to the dynamics of the situation," he had said.

"...and the size of the change itself can convey the stance of policy. For instance, if easing of monetary policy is required but the central bank prefers to be cautious in its accommodation, a 10 basis points reduction in the policy rate would perhaps communicate the intent of authorities more clearly than two separate moves one on the policy rate, wasting 15 basis points of valuable rate action to rounding off, and the other on the stance, which in a sense, binds future policy action to a pre-committed direction," he had added.

Das had explained that "in a situation in which the central bank prefers to be accommodative but not overly so, it could announce a cut in the policy rate by 35 basis points if it has judged that the standard 25 basis points is too little, but its multiple, i.e. 50 basis points is too much."

According to the Governor, "This approach can also be useful when the central bank is in tightening mode and potentially help avoid policy turnaround from forward guidance via a stance too far into the future, which in a highly volatile global scenario may not even be a year."

( With inputs from IANS )

Tags: RBIShaktikanta Das
Open in App

Related Stories

NationalRs 500 High-Quality Fake Currency Notes Circulating in Market, Says MHA; Here's How to Identify

Navi MumbaiRBI Repo Rate Cut to Boost Navi Mumbai Housing Demand Amid Mega Infrastructure Push

NationalRBI Slashes Repo Rate by 25 Basis Points to 6% in Second Consecutive Cut

NationalRBI Repo Rate Cut: How Much Will Your EMI Reduce After Reserve Bank of India's Latest Monetary Policy Update

NationalPublic Holiday on March 31, 2025: Are Banks Open or Closed on Financial Year-End? RBI Issues Important Update

कारोबार Realted Stories

BusinessIndian goods worth over USD 10 billion reach pakistan via third-country routes: GTRI

BusinessMahindra to acquire 58.96% stake in SML Isuzu for Rs 555 crore

BusinessCentre launches portal, guidelines for electronics component manufacturing scheme; aims for large investments

BusinessMillions benefited from Ayushman health cards, now is the time for Delhi: Hardeep Puri

BusinessViksit Bharat will be driven by start-ups and innovation: IIT Madras Director