RBI cuts repo rate by 0.25%

Today, the Monetary Policy Committee (MPC) of the RBI, in light of current and changing conditions in the economy has reduced policy repo interest rate by 25 basis points from 6.25% to 6.00%. The change will be implemented with immediate effect. This is the lowest the policy repo rate has been since 2010.

Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds. Repo rate is used by Central Banks to control inflation.

This decision of the MPC is in keeping with their stance of promoting the objectives of a medium term target of 4% for consumer price index (CPI), within a range of +/- 2% with the aim of meaningful growth. Growth projections for 2017-18 are still pegged at 7.3% as of June 2017.

RBI's announcement is likely to bolster consumer demand especially in the housing, automotive and FMCG sectors. Rise in cyclical investment can be expected in industries like real estate, cement, iron, steel and electrical goods. Banks will also be able to lower their lending rates, thereby reducing loan interest rates & benefitting the consumer. 

In addition, the reverse repo rate under the LAF stands adjusted to 5.75%, and the marginal standing facility (MSF) rate and the Bank Rate to 6.25%.

The next meeting of the MPC is scheduled for October 3 & 4, 2017.