Mumbai: The Reserve Bank of India in its monetary policy review today slashed its key lending rate or repo rate by 25 basis points to a six-year low of 6.25 per cent.
Today's event marks a new chapter for the RBI where the policy decision was made by a committee for the first time and not solely by the governor.
The Monetary Policy Committee (MPC) has two Reserve Bank officials apart from Governor Urjit Patel – this was his first policy after he took over from Raghuram Rajan in September – and three government-nominated academics.
The repo rate which was earlier 6.50 per cent is now 6.25 per cent. One hundred basis points is equal to 1 percentage point.
Banks are expected to pass on the RBI rate cut to customers, thereby increasing the chance of lower EMIs.
The RBI in its press release said, "The decision of the MPC is consistent with an accommodative stance of monetary policy in consonance with the objective of achieving consumer price index (CPI) inflation at 5 per cent by Q4 of 2016-17."
The central bank has set a varying inflation target of 2-6 per cent during 2017-21. Apart from that, a 4 per cent inflation target has been pegged for the upcoming financial years.
The rate cut was cheered by the markets with the Sensex rising over 91 points and the Nifty trading above 8769. Since morning too, markets witnessed robust trading sessions on the expectation that the central bank would not go for a status quo and reduce its key policy rate. The benchmark S&P Sensex saw a rise of over 150 point in early trade.
The committee said all six members were in favour of a rate cut. On the MPC, RBI governor Urjit Patel's is the casting vote. The minutes of the meeting will be put out on October 18, 2016.
Reduced rate means cheaper home loans?
Since January 2015, the central bank has reduced the repo rate by 200 basis points or 2 per cent. Whereas, the banks have reduced their lending rates merely by 0.5 per cent or 50 basis points during the period.
With the current announcement, the banks would also start announcing cuts in their lending rates.
