In view of the slowing growth rate Reserve Bank of India (RBI) on Tuesday cut the repo rate by 0.25 per cent to 6.25 per cent, its lowest since 2011.
The unanimous decision to reduce rates was taken by the new six-member Monetary Policy Committee (MPC) under a framework agreement signed with the government, marking a decisive shift in the approach to interest-rate setting in India, Indian Express has reported.
“The decision of the MPC is consistent with an accommodative stance of monetary policy in consonance with the objective of achieving consumer price index inflation at 5 percent by Q4 of 2016-17,” the central bank said in its statement. Retail inflation dropped to a five-month low of 5.05 per cent in August.
The MPC expects retail inflation rates to hover around 5 percent by March 2017, the RBI said in a statement. hAccording to experts, the dip in repo rate would lead to good borrowing environment. This would inturn mean people could expect cheaper bank loans and lower EMI’s for such loans
The RBI said that the repo rate announced indicated that the move was consistent with the accommodative stance of the cbank. The reaction from markets was immediate with rising from 28,250 points before the rate cut declaration to over 28,380 points almost immediately after.