The reverse repo rate stands adjusted to 6.0 per cent, and the marginal standing facility rate and the bank rate has been kept 6.5 per cent.
Shares of automobile companies were trading higher by up to 5 per cent on the National Stock Exchange (NSE), after the Monetary Policy Committee (MPC) of Reserve Bank of India (RBI) in its sixth bi-monthly monetary policy meeting on Thursday cut the repo rate by 25 bps to 6.25 per cent from 6.50 per cent, earlier. This was the first MPC meeting chaired by new RBI Governor Shaktikanta Das.
The MPC also changed its stance to "neutral" from the "calibrated tightening" adopted in October meet previous year.
A former economic affairs secretary, who now has the charge of central bank and is perceived to be close to the Union government, will not take "no" from banks on rate cuts too quickly.
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Observing that actual inflation in the third quarter of 2018-19 was marginally lower than what was projected, the RBI said, "There have been downward revisions in inflation projections during the course of the year, reflecting mainly the unprecedented soft inflation recorded across food sub-groups".
The MPC move to slash benchmark interest rate by 0.25 per cent to 6.25 per cent will result in lower cost of borrowing for the banks, which means they will reduce the benefit on to customers by reducing interest rates on loans, including home loans. MPC members Viral Acharya and Chetan Ghate voted against a rate cut.
Even though at the RBI pressure, Das maintained that the decision on lending rates would be left to the banks and was quick to add that he would meet bank heads soon where issue of inadequate monetary transmission would be discussed.
The shift in monetary policy comes nearly a week after Modi's government unveiled a budget packed with measures sure to please many voters, including fresh tax breaks for middle-class families and payments to India's struggling small farmers. The next meeting of the MPC is scheduled from April 2 to 4.