The Reserve Bank of India (RBI) on Wednesday cut the repo rate by 25 basic points (bps), bringing it down from 6.2% to 6%, effectively immediately.
The central bank had last cut key rates in October 2016.
The six member monetary policy committee (MPC), headed by RBI governor Urjit Patel, decided to keep the reverse repo rate under the liquidity adjustment facility (LAF) stands adjusted to 5.75 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 6.25 per cent, ANI reported.
Policy repo rate under liquidity adjustment facility (LAF) reduced by 25 basis
points from 6.25 % to 6.0 % with immediate effect: RBI
— ANI (@ANI_news) August 2, 2017
Urjit Patel, while addressing the media, said that there is a scope for banks to reduce lending rates, making the loans cheaper.
The Governor said that with inflation expected to rise, the MPC decided to maintain its neutral policy stance.
“The trajectory of inflation in the baseline projection is expected to rise from current lows,” Patel said.
“So, the MPC decided to keep the policy stance neutral and to watch incoming data. The MPC remains focused on its commitment to keeping headline inflation close to 4 per cent on a durable basis. Our stance is what it should be and what it was in June,” he added.
Retail inflation in India during June dropped to a record low of 1.54 per cent, while industrial production data showed that the growth in factory production fell to 1.7 per cent in May, from 8 per cent in the same month a year ago.
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 times of any shortfall of funds.
(With IANS inputs)