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Repo rate reduced by 25 basis points; EMIs to come down

The Reserve Bank of India (RBI) cut the policy repo rate by 25 basis points to 6.25% in a bid to revive economic
growth as it projected retail inflation to remain below its target of 4% for the next 12 months. The rate reduction was
the first since August 2017.

The RBI also simultaneously changed the stance of the policy to ‘neutral’ from ‘calibrated tightening’, which indicates that the central bank remains ready to move in either direction based on incoming data.

The move will enable banks to lower their lending rates. While all six members of the monetary policy committee voted in favour of a change in the stance, the vote for a rate reduction saw two members breaking with the majority view by backing the status quo. While some market participants had factored in a rate cut, there was near unanimity that the RBI would shift its stance given the softening inflation.

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