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RBI cuts rates by 25 base points, repo now stands at 6%

The Reserve Bank of India cut its repo rate 25 bps in its third bi-monthly monetary policy review of 2017-18 today. The repo rate now stands at 6 percent.

The bank also cut reverse repo rate by 25 bps to 5.75 percent.

The six-member Monetary Policy Committee (MPC) led by governor Urjit Patel began a two-day meet on Tuesday to deliberate on the bank’s stance on key policy rates.

Four of six members of the MPC were in favour of a rate cut including governor Urjit Patel.

In its last policy meet, the MPC retained the repo rate at 6.25 per cent for the fourth straight time, citing risk to inflation. Patel had argued for avoiding premature policy action and waiting for more inflation data.

Incoming data is expected to provide greater clarity on the durability of recent food and non-food disinflation, he had opined.

Repo rate is the rate at which the RBI lends money to commercial banks for the short-term.

One of the MPC members, Ravindra Dholakia, however, had advocated a 50 basis point cut in the repo rate, saying several noteworthy developments recently on prices and output fronts warrant a decisive policy action.

However, 40 of 56 economists polled by Reuters between July 24 to July 27 predicted the RBI cut its repo rate by a quarter percentage point to 6 percent on August 2. Two respondents said the central bank would cut the rate by 50 basis points. Only 14 respondents predicted no change.

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