RBI repo rate: RBI cuts key repo rate by 25 basis points

In a surprise move, the Reserve Bank of India (RBI) today, reduced the repo rate by 25 basis points or 0.25 per cent. The central bank also changed its policy stance to “neutral” from existing “calibrated tightening”.

The reduction in repo rate may lead to lower EMIs for auto and car loan borrowers, say analysts. The repo rate – which is the key interest rate at which the RBI lends short-term funds to commercial banks – now stands at 6.25 per cent.

Today’s RBI policy statement is the first under Governor Shaktikanta Das, who took charge in December last year. He took office nearly a week after the last policy meet on December 5 by his predecessor Urjit Patel. The RBI has maintained status quo on the key rates in the October and December policy reviews.

The six-member monetary policy committee voted 4:2 in favour of the rate cut, while the decision to change policy stance was unanimous.

The RBI cut its estimates on headline inflation – which cooled off to a 18-month low of 2.2 per cent in December – for the next year, and expects the number to come at 2.8 per cent in March quarter, 3.2 to 3.4 per cent in first half of next fiscal and 3.9 per cent in third quarter of financial year 2019-20.

These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of 2 per cent up or down, while supporting growth, the MPC said in a statement.

Markets, which were trading 100 points higher ahead of the policy statement are likely to cheer the move, but could end up with mixed performance by end of the day considering that outcome of 200 companies that are slated to announce results.

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