The Reserve Bank of India (RBI) today lowered the repo rate by 100 basis points to 8 % as against 9 % earlier. Repo rate is the rate at which the RBI lends to the banks.

The decision was aimed at improving the liquidity position in the country.

100 basis points is one percentage point(1 % ).

A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly used for calculating changes in interest rates, equity indexes and the yield of a fixed-income security.

For example, if the Bank raises interest rates by 50 basis points, it means that rates have risen by 0.50% percentage points. If rates were at 2.50%, and the Fed raised them by 0.50%, or 50 basis points, the new interest rate would be 3.0%.

[Source: Investopedia ]

On Tuesday June/24/2008 Reserve Bank of India (RBI) increased the repo rate to 8.75 per cent — a six-year high — from 8.25 per cent, and CRR to 8.75 per cent from 8.25 per cent.

Reserve Bank of India’s move to hike repo rate (the rate at which RBI lends to banks) and cash reserve ratio (CRR or the portion of deposits the banks have to keep with the RBI), this two-pronged move will make it difficult for the economy to maintain its expected growth momentum of 8 to 8.5%.

Banks, which have been holding their lending rates so far, will be forced to hike them in the next few days by at least 100 to 150 basis points (100 basis points is one percentage point).