RBI Governor Urjit Patel offers festive gift to borrowers, cuts interest rates by 0.25%

Zee Media Bureau

New Delhi: The newly-constituted Monetary Policy Committee (MPC) headed by RBI Governor Urjit Patel on Tuesday cut repo rate by 0.25 percent in its maiden policy review which is likely to make home and auto loans cheaper.

After the cut, the repo rate stands at 6.25 percent. Consequently the reverse repo rate has been adjusted to 5.75 percent.

The marginal standing facility (MSF) rate and the Bank Rate have been adjusted to 6.75 percent.

The repo policy rate is now at its lowest since November 2010. RBI has retained GDP growth rate at 7.6 per cent for current fiscal. It expects retail inflation to be 5 percent by March 2017 with upside risk.

All six member of the Monetary Policy Committee voted in favour of rate cut. Decision of MPC consistent with accommodative stance of the monetary policy.

The MPC was introduced to make decision-making more transparent and more collegiate. Hitherto, the RBI governor had taken sole responsibility for deciding rates. The governor still gets a deciding vote if the panel is evenly split.

August retail inflation eased to a five-month low of 5.05 percent but WPI inflation climbed to a two-year high of 3.74 percent.

Before the dip in August, both the retail as well as wholesale price indices were on a continuous upward spiral.

The government had in August notified 4 percent inflation target with a range of plus/minus 2 percent for the next five years under the monetary policy framework agreement with the Reserve Bank.

Patel was the one who wrote the inflation glide path for RBI when he was deputy to former Governor Rajan, and analysts say it is unlikely that he will jettison his guard on price rise, especially under the new inflation targeting framework.