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Reserve Bank Of India Eases Rates By 25 Bps; Expect Another 25-50 Bps In 2015

As we expected, the central bank cut policy rates by 25bps to 7.5%, just before the markets opened on Wednesday in India. This out-of-schedule policy move was primarily driven by the fiscal consolidation move from the government, as announced by the finance minister on February 28th, 2015.

The RBI kept other key policy variables intact :

  1. keep the cash reserve ratio (NYSE:CRR) of scheduled banks unchanged at 4.0% of net demand and time liabilities (NDTL);
  2. continue to provide liquidity under overnight repos at 0.25% of bank-wise NDTL at the repo (policy) rate and liquidity under 7-day and 14-day term repos of up to 0.75% of NDTL of the banking system through auctions; and
  3. continue with daily variable rate repos and reverse repos to smooth liquidity. Read more