RBI cuts repo rate by 25 bps for second time in 2019

The Reserve Bank of India (RBI), today,  decided to cut its benchmark repo rate by 25 basis points (bps) to 6% from 6.25% with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% and to support growth. The rate cut was anticipated by the economist and the markets.

This is the second rate cut announced by the central bank in 2019 which indicates a falling rate environment. One bps is one-hundredth of a percentage point. Repo rate, the key policy rate, is the rate at which the central bank lends money to commercial banks.

The reverse repo rate stands adjusted to 5.75%, and the marginal standing facility rate and the Bank Rate to 6.25%. The monetary policy committee (MPC), however, has maintain the neutral monetary policy stance.

The MPC voted 4:2 in favor of the repo rate cut. MPC members Chetan Ghate and Viral V. Acharya voted to keep the policy rate unchanged. Only Ravindra H. Dholakia voted to change the stance from neutral to accommodative while rest of the MPC members voted in favour of the decision to maintain the neutral stance of monetary policy. In 2018, the central bank had raised rates by 50 bps to 6.5% which in 2019 has been cut and repo rate is back at 6%.

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