The Reserve Bank of India has reduced the policy repo rate by 25 basis points from 6.75 per cent to 6.5 per cent. The cash reserve ratio has been kept unchanged at four per cent. Tirupur garment exporters say these are good signs and that the introduction of the marginal cost of funds based lending rate would improve transmission and magnify the effects of the current policy rate cut which will help exporting units enhance their competitiveness in the scenario of a subdued world trade.

The RBI will monitor developments closely to contain any unanticipated forex market volatility. This is necessary because sudden currency fluctuations will put exporting units, particularly small and medium exporting units, into difficulties if the RBI does not intervene immediately.

Repo rate is the rate at which the central bank of a country lends money to commercial banks in the event of any shortfall of funds. Repo rate is used by monetary authorities to control inflation.

The repo rate cut would provide room for making investments in the knitwear sector. However apparel exporters from Tirupur say the reduction of the repo rate would be meaningful only when banks pass on the measures to small and medium enterprises and exporting units.