RBI cuts the Repo rate by 100 bps to 8 per cent

The Reserve Bank of India (RBI) has cut the Repo rate by 100 bps to 8% with immediate effect. This is the first Repo cut since 2003. This move is a bit of surprise for all but its another measure to check the impact of the global meltdown. On Monday the Sensex ended 247 points higher but came off the day’s highest gains of 563 points, even as the Reserve Bank of India cut Repo rate by 100 bps.

Repo rate is the rate at which the RBI provides funds to banks against the collateral of government bonds; this may be another open market operation by the apex bank to tackle the crisis. The bank would review their loan rate in correspondence to the change in the Repo rate. A fall in interest rate boosts stocks as it results in lower borrowing costs for corporates. The announcement by the RBI over the cutting down of Repo rate however triggered the Indian equities trend but failed to remain till the end of market session.