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RBI reduces repo rate by 25 basis points, EMIs likely to fall

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New Delhi, Jun 2: RBI Governor Raghuram Rajan on Tuesday cut the policy repo rate by 25 basis points from 7.5 per cent to 7.25 per cent with immediate effect.

The cash reserve ratio (CRR), the quantum of funds commercial banks have to keep in the form of cash or government bonds, has been left unchanged at 4 per cent of deposits.

RBI reduces repo rate by 25 basis points

This was a widely anticipated move as bankers and industry leaders expected the Reserve Bank to lower its key policy rate today to support economic activity and boost investment as inflation and fiscal deficit are under control.

"The reverse repo rate under LAF stands adjusted to 6.25%,and marginal standing facility (MSF) rate and the Bank Rate to 8.25%," RBI Governor said in a statement in Mumbai.

The wholesale price index based inflation hit a new low of (-)2.65 per cent in April, as deflationary pressures continued for the sixth month. [RBI may cut policy rate to spur investment: Bankers]

Even retail inflation is on the downswing. Industry leaders and bankers also take comfort from the fact that the government has been able to rein in fiscal deficit within 4 per cent of GDP in 2014-15, providing headroom for RBI to soften up.

RBI Governor Raghuram Rajan had snipped the repo rate twice this year, in January and March, by 0.25 per cent each, but left it unchanged at the bi-monthly monetary policy review on April 7.

The repo rate, at which RBI lends to banks, now stands at 7.25 per cent and the cash reserve ratio, the amount of deposits lenders park with the central bank, is 4 per cent.

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