RBI cuts key policy rates by 25 bps to 6.25%

MUMBAI(PTI): The Reserve Bank of India cut key policy rates by 25 bps to 6.25% from the current 6.50%.

Consumer inflation reduced steeply to 5.0% in August from 6.1% from July on easing food prices. Inflation is further expected to ease as the good monsoon leads more production in the coming months.

The key repo rate — or the rate at which banks borrow from the RBI — was at 6.50% at the end of former RBI Governor Raghuram Rajan’s tenure.

He cut rates by 150 basis points between January 2015 and August 2016, his last monetary policy, hoping that banks would transmit the rate cut benefit in terms of cheaper loans and reduced ‘floating’ EMIs.

This was the fourth monetary policy of the fiscal and the first by the new RBI Governor Urjit Patel. The 4th bi-monthly monetary policy review was also a first for two other things — it was the first by the newly-constituted Monetary Policy Committee and also the first to be announced at 2:30 pm, followed by an interaction of the RBI Guv and the deputy governors with the press.

The power to set the interest rates now lies with the six-member MPC which has three government-appointed members and the other three were picked by the central bank. The MPC also takes away the power of the RBI governor to veto interest rates.

At the time, benchmark 30-share BSE Sensex was trading at 28,308.51, up 65.22 points or 0.23% from previous close.