The RBI's Monetary Policy Committee has reduced repo rate reduced by 25 basis points to 6.25 from 6.5 per cent. 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 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. The central bank has cut its estimates on headline inflation for the next year. Retail inflation, measured by y-o- y change in the CPI, declined from 3.4 per cent in October 2018 to 2.2 per cent in December, the lowest print in the last 18 months.
"These decisions are 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," said the RBI. There have been downward revisions in inflation projections during the course of the year, reflecting mainly the unprecedented soft inflation recorded across food sub-groups, said the RBI.
The MPC move to slash benchmark interest rate by 0.25 per cent to 6.25 per cent will result in lower cost of borrowing for the banks, which means they will reduce the benefit on to customers by reducing interest rates on loans, including home loans.
Speculations were there that the six-member MPC, headed by RBI Governor Shaktikanta Das, will announce repo rate cut to ease pressure on banks. Of the six-member panel, Ravindra H Dholakia, Pami Dua, Michael Debabrata Patra and Shaktikanta Das voted in favour of the reduction in repo rate cut. Chetan Ghate and Viral V Acharya voted to keep the policy rate unchanged.
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. The next meeting of the MPC is scheduled from April 2 to 4.
Edited by Manoj Sharma