RBI: Repo rate reduced by 25 basis points

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In the past, even when the RBI has signalled lower rates, this rate transmission never really happened because banks always found a way to ignore the central bank's policy cues.

Reserve Bank of India in its bi-monthly monetary policy has reduced repo rate by 25 basis points to 6.25 per cent. RBI's six-member monetary policy committee also brought down reverse repo rate to 6 per cent. The inflation rate is estimated at 3.2-3.4% in the first half of the year 2019-20 and 3.9 % in the third quarter of 2019-20, said RBI Governor Shaktikanta Das.

More importantly, the MPC has spelt out the change in policy stance to "neutral" from what was called "calibrated tightening so far".

"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, while supporting growth", said the RBI. He, however, added that the RBI's track record in projection inflation accurately is no different from the experience of global central banks, who have also seen inflation veer off the expected track in recent years.

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The MPC move to slash benchmark interest rate by 0.25 per cent to 6.25 per cent will result in lower cost of borrowing for the banks, which means they will reduce the benefit on to customers by reducing interest rates on loans, including home loans.

This was the first RBI policy meeting since Das took over as the RBI governor in December. MPC members Viral Acharya and Chetan Ghate voted against a rate cut.

The committee voted 4:2 to pare the repo rate by 25 basis points to 6.25 percent. Finance Minister Piyush Goyal rolled out the government's last budget ahead of this year's national elections, announcing no tax on income up to Rs 5 lakh, a Rs 75,000 crore assured income scheme for small farmers and a mega pension scheme for workers in the unorganised sector. The customary post-Budget board meeting was earlier scheduled for February 9 but has now been deferred.

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