Reserve Bank of India cuts repo rate by 25 basis points

New Delhi: The Reserve Bank of India (RBI), on Tuesday, cut the short term lending rates (repo rate) New Delhi: The Reserve Bank of India, on Tuesday, cut the short term lending rates (repo rate) by 0.25 per cent (25 basis points). The repo rate which was 6.50 per cent has come down to 6.25 per cent resulting in a cumulative 175 basis points drop in policy rate since January 2015.

This was the central bank’s fourth bi-monthly policy statement for the year 2016-17 while the first exercise by the monetary policy committee (MPC) after the new Governor Urjit Patel took over the responsibilities. The committee consisted of six members and all the members voted in the favour of cutting down the repo rate.

The central bank’s policy statement said, “The decision of the monetary policy committee was consistent with the accommodative stance of the policy.” After this rate change the retail inflation is expected to be 5 per cent by March 2017 with an upside risk.

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It may be mentioned that the RBI has cut the repo rates five times since January 2015 and this is for the first time that decision-making on interest rates has shifted to the six-member panel which has equal representation from RBI and the government.

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What is repo rate:

• Repo rate is the rate of interest at which the central bank Central bank of the country lends loans to the commercial banks in the event of any shortfall of funds. Repo rate is a major tool used by monetary authorities to control inflation.
• It is also known as short term interest rate.
• The current rate has changed to 6.25 after the recent cut of 25 basis points or 0.25 per cent.