RBI cuts repo rate by 25 bps; loans cheaper, inflation controlled, growth curtailed

New Delhi, October 4: In a maiden policy announcement as RBI Governor, Urjit Patel’s chaired central bank’s fourth bi-monthly policy statement here for the year 2016-17 and announced a 25 basis points cut on a key lending rate on Tuesday.

The decision came as a sheer relief to commercial banks and India Inc after the conclusion of two day MPC meeting.

The decision lowered the repurchase rate to 6.25 per cent. The repurchase rate is the short-term lending rate charged by the central bank on borrowings by commercial banks. Subsequently the reverse repurchase rate also purged to 5.75 per cent.

The lending rate for banks would also decline and so would your EMIs after the rate cut.

In the maiden Monetary Policy meet, Patel had a herculean task to ensure a retail inflation of 4 per cent, plus or minus a band of two percentage points. The current decision to reduce the rate by 25 basis point was consistent with the objective of achieving the inflation target said the panel. The retail inflation is likely to be 5 per cent by March 2017. Though at the higher side of the current target, the objective seems attainable.

With the favorable rate cut, markets responded in green to the decision and key indices showed a welcome spike. The sensitive index of the BSE jumped to 28,380 points from 28,250.

Though all the six members of panel voted in favor of rate cut, RBI however expressed risks to growth next year.

“The inflation outlook for 2016-17 has improved, but close vigilance is required to achieve the prospects of reaching 4 per cent. Robust consumption brightens the outlook for real gross value added growth in 2016-17, but muted private investment and weak global demand may restrain the pace of growth in 2017-18,” the central bank said in the Monetary Policy Report ahead of the policy review decision.

Wefornews Bureau

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