The Reserve Bank cut its key lending rate by 0.25 per cent – first time in 10 months – to about 7-year low of 6 per cent, a move which is likely to translate into lower interests rates for home, auto and other loans as also boost economic activity.
Citing record low inflation and retaining its neutral policy stance, RBI reduced the benchmark repurchase (repo) rate, at which it lends to banks, from 6.25 per cent to 6 per cent as was widely expected.
This level was last seen in November 2010.
The reverse repo, the rate which banks get for parking funds with RBI, has been readjusted accordingly by similar percentage point to 5.75 per cent.
The marginal standing facility (MSF) rate and the Bank Rate have also come down to 6.25 per cent.
“Some of the upside risks to inflation have either reduced or not materialised,” RBI said.
Retail inflation at 1.5 per cent for June was well below the RBI’s 4 per cent target and its projection of 2-3.5 per cent for the first half (April-September) of the current financial year.
“Consequently, some space has opened up for monetary policy accommodation, given the dynamics of the output gap,” RBI Governor Urjit Patel said.