RBI Reduces Repo Rate To 6.25%

The Reserve Bank of India (RBI) on February 7 slashed benchmark interest rate by 0.25 per cent to 6.25 per cent on expectation of inflation staying within its target range. The move is likely to translate into lower monthly installments for home and other loans. The central bank also changed its monetary policy stance to neutral from the earlier calibrated tightening, indicating it might further reduce rates in the near future.

In the first policy review under RBI Governor Shaktikanta Das, the six-member Monetary Policy Committee (MPC) voted 4:2 in favour of the rate cut while all the members voted in favour of changing the policy stance. Deputy Governor Viral Acharya and another MPC member, Chetan Ghate, voted for status quo in interest rates while Das and three others voted for a cut in interest rates.

The rate cut was in consonance of achieving the medium term objective of maintaining inflation at the four per cent level while supporting growth, the RBI said.

In August last year, the RBI had hiked key interest rate by 25 basis points. With that, repo rate had gone up to 6.50 per cent. That was also the second time in a row that the Central bank decided to increase repo rate, the rate at which it lends money to banks. For the first time in four-and-half-years, the RBI on June 6 raised repo rate by 25 basis points (bps) to 6.25 per cent on inflation concerns.

The previous hikes by the Central bank had resulted in several banks increasing interest rates, making the cost of availing of home loans costlier for homebuyers. Several public and private lenders, including State Bank of India and ICICI Bank, hiked their marginal cost of funds-based lending rates (MCLR).

The MPC will hold its next meeting on April 2-4.