Yahoo Finance Analyzing the Reserve Bank of India’s Steady Repo Rate
Why Didn't the RBI Change the Repo Rate in February?
What’s the repo rate?
The repo rate is a repurchase option rate. It’s a key monetary policy rate for the RBI (Reserve Bank of India)–India’s central bank. This is the rate at which the RBI lends to commercial banks. The reverse of this rate–the rate at which banks park money with the central bank–is known as the “reverse repo rate.” The rate is similar to the Fed’s federal funds rate.
The RBI changes the repo rate to signal an increase or decrease in rates to commercial banks. Other rates, like the reverse repo rate and the MSF (marginal standing facility) are fixed against the repo rate. While the reverse repo is fixed at 100 basis points lower than the repo rate, the MSF is fixed at 100 basis points higher than the repo rate.
No change in the rate in February
The RBI board met on February 2, 2016, to decide on the repo rate. It left the rate unchanged at 6.75% for the second successive meeting. This meant that the reverse repo and MSF didn’t change either. The last time the RBI moved on the repo rate was in September 2015. The RBI aggressively reduced the repo rate by 50 basis points.
In this series, we’ll take a look at what led the RBI to keep the repo rate the same. We’ll discuss its assessment of the country’s macroeconomic environment. We’ll also see if there are any implications for India-focused mutual funds like the Matthews India – Investor Class (MINDX) and the Eaton Vance Greater India Fund – Class A (ETGIX). We’ll see how ADRs (American depositary receipts) of interest rate sensitive companies like ICICI Bank (IBN), HDFC Bank (HDB) and Infosys (INFY) were impacted.
In the next part, we’ll see how Indian equities reacted after the RBI’s February statement.
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