Central Bank cuts repo rate by 25 bps

INDIA-ECONOMY/CBANK (File) Reserve Bank of India(RBI)

India's newly minted monetary policy committee(MPC) delivered a surprise 25-basis-point cut in the repo rate to 6.25 percent on Tuesday, as Reserve Bank of India Governor Urjit Patel presided over his first policy review since his appointment last month.

The latest cut extends an easing cycle that began in January 2015 and reduces the repo policy rate to its lowest since November 2010. The RBI did not provide a breakdown of how the six members of the monetary policy committee voted.

The MPC, which was meeting for the first time, was introduced to make decision-making more transparent and more collegiate. Hitherto, the RBI governor had taken sole responsibility for deciding rates. Governor Patel, who was appointed last month, has a deciding vote if the panel is evenly split."The decision of the MPC is consistent with an accommodative stance of monetary policy in consonance with the objective of achieving consumer price index inflation at 5 percent by Q4 of 2016-17," the RBI said in its statement.

The broader NSE index was up 0.3 percent, while the benchmark 10-year bond fell 3 basis points to 6.75 percent. The rupee extended gains to 66.40 per dollar from 66.47.Consumer inflation eased to a five-month low of 5.05 percent in August, within the committee's 2-6 percent objective, and is expected to ease further in the months ahead after a good monsoon has sent food prices sharply lower.

In the March-June quarter economic expansion slowed to 7.1 percent annually from 7.9 percent in the previous quarter, though that still places India among the world's fastest-growing economies.While the MPC has been given a mandate of 'maintaining price stability', it must do so 'while keeping in mind the objective of growth,' according to the amended RBI Act. 

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Topics : #RBI

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