RBI cuts key lending rate by 25 basis points to 6 per cent

Lucknow: The prediction made by many economists and businessmen has come true as the Reserve Bank of India cut the key lending rate by zero point two five per cent on Wednesday. This may lower the loan rates and benefit some industries which were in urgent need of loans at cheaper rates.

Most of them had expected the rate cut to the same extent in view of the inflation coming down to less than two per cent.

In the light of forecast made on Tuesday bank and some other stocks had closed at higher levels at the end of the day.

In view of this cut the repo rate has come to 6 per cent which is seven-year-low. The reverse repo rate has stood at 5.75 per cent.

The new rate was announced by Reserve Bank governor urjit Patel after a meeting of the Monetary Policy Committee. "The decision of the MPC is consistent with a neutral stance", he told media persons.

He hoped that banks would lower loan rates in the light of the new decision. " Banks have scope for lowering lending rates further in some segments where transmission of lower rates has not been faster".

"The decision of the MPC is consistent with a neutral stance of monetary policy 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," a statement issued by the RBI, later, said .

According to it , weak consumer spending as well as lower food prices have kept inflation below the RBI's mid-term target of 4 per cent for the past eight months. Consumer inflation eased to its slowest pace in more than five years to 1.5 per cent in June.

"Prices of food and beverages, which went into deflation in May 2017 for the first time in the new CPI series, sank further in June as prices of pulses, vegetables, spices and eggs recorded year-on-year declines and inflation moderated across most other sub-groups. There are now visible signs, however, of the usual seasonal price spikes, even if with a delay and especially in respect of tomatoes, onions and milk."

Economists expect the RBI to further cut rate later this year. "The market was optimistic about a cut and a 25 basis point cut is on expected lines and I am expecting two more cuts of 25 basis points each this year", one of them said.

The next meeting of the MPC is scheduled to be held on October 3 and 4 next. One member, Ravindra H. Dholakia voted for a policy rate reduction of 50 basis points.