In the first monetary policy review under RBI Governor Urjit Patel, the interest rate was, on Tuesday, cut by 0.25 per cent to six-year low of 6.25 per cent in a unanimous decision by the new rate-setting panel MPC.
The cut, first in six months, came amidst big clamour for easing rates especially after the departure of former Governor Raghuram Rajan, who was often accused of stifling growth by keeping rates too high.
Today's policy decision was for the first time made by a six-member panel called the monetary policy committee or MPC; the decision was so far taken by the RBI governor alone.
The 6-member Monetary Policy Committee, headed by Patel, reduced repo rate or the short term rate at which central bank lends to banks, to 6.25 per cent. Consequently, the reverse repo rate has also come down by a similar percentage point to 5.75 per cent.
The move will lead to reduction of lending rate by banks leading to lower EMI for housing, car loan and corporate borrowers.
“The decision of the MPC is consistent with an accommodative stance of monetary policy in consonance with the objective of achieving consumer price index (CPI) inflation at 5 per cent by Q4 of 2016-17 and the medium-term target of 4 per cent within a band of +/- 2 per cent, while supporting growth,” RBI said in the fourth bi-monthly monetary policy review.