Reserve Bank of India Governor Bimal Jalan said on Wednesday that the central bank had a soft and flexible stance on altering the repo rate if monetary conditions warranted.
"The bank rate up to October is soft and stable. Repo rate you can say is flexible and soft," Jalan told reporters a day after the central bank cut the bank rate by a quarter percentage point to six per cent, a 32-year low, in its monetary policy.
The central bank's repo rate, which is used as a benchmark for pricing short-term assets, is now at 5 per cent. The RBI last cut it by half a percentage point in early March.
Jalan said he did not expect interest rates to be impacted by the Union government's borrowing programme.
The government has a gross borrowing target of 1.66 trillion rupees for the current fiscal year to March 2004.
The RBI also cut the cash reserve ratio -- the proportion of deposits that banks must keep in cash with the central bank -- in its annual policy by a quarter point to 4.5 per cent from June 14.
The cut will release Rs 35 billion to banks for lending.
But the central had also said in its policy statement that further sizeable downward movements in interest rates were unlikely, given that real interest rates were relatively low.
Repo: Repurchase agreements or ready forward deals, a secured short-term -- usually 15-day -- loan by one bank to another against government securities. Legally, the borrower sells the securities to the lending bank for cash, with the stipulation that at the end of the borrowing term it will buy back the securities at a slightly higher price, the difference in price representing the interest.
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