RBI governor Raghuram Rajan cut repo rate by 50 basis points to 6.75%. Now the repo rate stands at a 4-1/2 year low, while the cash reserve ratio stood unchanged at 4%.

Speaking about this, Raghuram Rajan said, “a number of conditions for further accommodation have been met since our last review.”

By the start of the next year, 6 percent inflation target is likely to be achieved. In the April 2015 monetary policy statement, the Reserve Bank said that, it would work hard in reaching to the mid-point of the inflation band, by the end of 2017-18 fiscal year.

“Therefore, now, it is to be focused on bringing the inflation to around 5 per cent by the end of 2016-17 fiscal year,”Rajan said.
 
Adding further, RBI official said, “While the RBI's stance will continue to be accommodating, the focus of monetary action for the near term will shift to work with the government, to ensure that, the  impediments to banks passing on the bulk of the 125 cumulative basis points cut in the policy rate are removed.”

“The RBI will continue to be vigilant for signs that monetary policy adjustments are needed to keep the economy on the target dis-inflationary path.”

“As favourable base effects reverse, the inflation is expected to go up from September for a few months. If the increase in sown area translates into higher production, there would be a chance to improve the outlook for food inflation,” Rajan added.
 
RBI even acknowledged the need for a more accommodating policy. “Investment is expected to respond strongly, if there is a bit more certainty, about the extent of monetary stimulus in the pipeline, even if the transmission is slow. Therefore, the Reserve Bank has front-loaded policy action by reducing the repo rate by 50 basis points.   

Raghuram Rajan has been under pressure from the Finance Ministry, as well as the industry, to cut the interest rate, to spur economic recovery and thus mitigate the impact of slowing China on India.

By Phani Ch