Muted growth and subdued inflation prompted the Reserve Bank of India (RBI) on Thursday to lower its key lending rate for commercial banks by 25 basis points (bps) to 6 per cent.
Accordingly, the lower repo, or short-term lending rate for commercial banks, will reduce interest cost on automobile and home loans, thereby ushering in growth.
The decision to reduce repo rate was taken by the RBI's Monetary Policy Committee (MPC) at its first monetary policy review of the current fiscal.
"On the basis of an assessment of the current and evolving macroeconomic situation, the MPC decided to reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 6 per cent from 6.25 per cent with immediate effect," the RBI said.
"Consequently, the reverse repo rate under the LAF stands adjusted to 5.75 per cent, and the marginal standing facility (MSF) rate and the bank rate to 6.25 per cent."
Additionally, the MPC also decided to maintain the neutral monetary policy stance.
"These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of + or - 2 per cent, while supporting growth."
At its final bi-monthly policy review of 2018-19 in February, the central bank's MPC voted to lower its repo rate by 25 bps to 6.25 per cent.
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