RBI cuts repo rate by 25 bps; disappoints markets

The Reserve Bank of India (RBI) on Thursday, reduced the repo rate to 6% from the existing 6.25%, disappointing the market players who have been affected by the liquidity crunch in the financial system.

With this, the reverse repo rate has also been revised to 5.75% from 6%.

The RBI's MPC voted in favour of a rate cut in 4:2 vote, with Chetan Ghate and deputy governor Viral V Acharya yet again dissenting in favour of holding on to the rates.

The Reserve Bank also maintained its outlook stance neutral. However, the bank has lowered the growth of the target to 7.2% from existing 7.4% for FY20.

The central bank also lowered the CPI inflation target to 2.4% in Q4:2018-19 from 2.8%, 2.9-3.0% in H1:2019-20 and 3.5-3.8% in H2:2019-20, with risks broadly balanced.

However, the markets have shown a disappointing reaction to the MPC decision, as there were expectations of change in Cash Reserve Ratio, in the wake of the continued liquidity crunch in the financial markets.

Markets, which were trading flat in a build-up to the announcement, saw profit-booking immediately after the announcement. At the time of filing this copy, BSE Sensex was down 87 points, while Nifty was down 18 points.