India’s central bank cuts repo rate by 25 basis points, changes stance to ‘neutral’

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The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) has reduced repo rate by 25 basis points to 6.25 per cent per annum from 6.5 per cent p.a.

The apex bank panel has reduced the key interest rate on expectation of inflation staying within its target range, which is a good news for people as they would eventually have to pay lower monthly installments for home and other loans.

The reverse repo rate stands adjusted to 6.0 per cent, and the marginal standing facility rate and the bank rate has been kept 6.5 per cent. The MPC has also decided to change the monetary policy stance from ‘calibrated tightening’ to ‘neutral’.

The bi-monthly meet under the newly appointed RBI Governor Shaktikanta Das saw the six-member MPC panel voting 4:2 in favour of the rate cut. However, all the members agreed on changing the policy stance to neutral.

There were also speculations that the six-member MPC, headed by RBI Governor Shaktikanta Das, who took over after former RBI governor, Urjit Patel’s’ sudden resignation,  will announce repo rate cut to ease pressure on banks.

This was not only the first MPC meeting under Das, but comes less than a week after the Interim Budget, which was packed with sops to small farmers and the middle-class with an eye on the upcoming general elections.

Analysts and researchers had also predicted it would be a “tricky monetary policy path for RBI” as the government projected fiscal slippage in the Budget. “The combination of fiscal challenges and rising oil prices makes the RBI’s policy path a tricky one this year. Growth has largely bottomed out, but India has yet to benefit from the synchronised pick-up in global demand. In this light, we expect the monetary policy committee to turn hawkish, but not enough for the balance to tip towards a rate hike this week,” a research report quoted by Business Today said.

Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at shekhar.ghosh@indoasiancommodities.in.

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