RBI cuts repo rate by 25 bps, EMIs to fall

Mumbai: The Reserve Bank of India (RBI) in its monetary policy review cut its key lending rate or repo rate by 25 basis points to a six-year-low of 6.25 percent on Tuesday, while keeping the Cash Reserve Ratio (CRR) unchanged.

Repo rate is the rate at which the banks borrow from the RBI, while CRR refers to quantum of fund to be parked mandatorily with the RBI. Both, along with several other tools, are used by the RBI to infuse or suck out liquidity from the market.

Today’s rate decision, the first in the tenure of new RBI chief Urijit Patel, also began a new era for the central bank. The policy decision was for the first time made by a six-member panel called Monetary Policy Committee or MPC, which has equal representation from RBI and the government. The decision was so far taken by the RBI governor alone.

All six members voted for a rate cut in a unanimous decision. Welcoming MPC members, Dr Patel in the post-policy media briefing said, “They will be a source of support to RBI and help enhance the process and quality of monetary policy making in the country.”

The move will lead to reduction of lending rate by banks leading to lower EMI for housing, car loan and corporate borrowers.

Since January 2015, the RBI has cut the repo rate by 1.50 percent and banks have reduced their lending rates by about 0.5 percent. It now remains to be seen how the banks react and when they start reducing their lending rates.

Markets cheered the move, with Sensex rising 91 points and Nifty closing above 8,750.

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