The Reserve Bank of India (RBI) reduced the repo rate by 0.25% to 6.50% in its April review, marking a more than five-year low. Since January 2015, the repo rate has been cut by a total of 150 basis points (1.5%). Market participants are awaiting possible revisions in GDP growth forecasts, inflation targets for FY17, and RBI's commentary on foreign exchange reserves, especially as about $30 billion of foreign currency non-resident bank deposits mature in September.

Which of the following statements contradicts the RBI's recent rate cut actions?

Question

The Reserve Bank of India (RBI) reduced the repo rate by 0.25% to 6.50% in its April review, marking a more than five-year low. Since January 2015, the repo rate has been cut by a total of 150 basis points (1.5%). Market participants are awaiting possible revisions in GDP growth forecasts, inflation targets for FY17, and RBI's commentary on foreign exchange reserves, especially as about $30 billion of foreign currency non-resident bank deposits mature in September.

Which of the following statements contradicts the RBI's recent rate cut actions?

Accepted Answer

**Solution:**

1. The RBI's reduction of the repo rate aims to lower borrowing costs, which generally leads to cheaper loans and EMIs for consumers.

2. A lower repo rate can also contribute to the strengthening of the Indian Rupee against other currencies due to improved economic conditions.

3. The Consumer Price Index (CPI) measures inflation and is a key factor in RBI's interest rate decisions. A rise in CPI from 4.83% to 5.39% does not contradict the rate cut but reflects inflation trends that the RBI monitors.

4. The sharp decline in global crude oil prices supports the RBI's decision to reduce rates, as lower oil prices ease inflationary pressures.

5. Since none of the options contradict the RBI's rate cut measures, the correct choice is that none of the statements negate the RBI's actions.

**Answer:** None of the above options negate the RBI's rate cut steps.

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