Tuesday, 4 October 2016

Monetary Policy Review: RBI Cuts Repo Rate by 25 bps

RBI Cuts Repo Rate To 6-Year Low In Urjit Patel's First Monetary Policy, EMIs To Fall 

The Reserve Bank of India in its monetary policy review today cut its key lending rate or the repo rate by 25 basis points to a six-year low of 6.25 per cent, from 6.5 per cent. Banks are expected to pass on the RBI rate cut to customers. Today's rate decision, the first in the tenure of new RBI chief Urijit Patel, also began a new era for the central bank. Today's policy decision was for the first time made by a six-member panel called the monetary policy committee or MPC; the decision was so far taken by the RBI governor alone. 
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  • All six members voted for a rate cut in a unanimous decision. 
  • Markets cheered the move, with Sensex rising 91 points and Nifty closing above 8,750. 
"Weak global demand is actually going to drag down trade volumes. It is possible that IMF may downgrade global growth further. There is also the issue of outcome of US presidential elections," said Governor Urjit Patel, 52, who took over last month from Raghuram Rajan after serving for three years as a deputy governor.  

On the MPC, Dr Patel's is the casting vote. The other members are two Reserve Bank officials and three government nominated academics. The committee is bound by an inflation target of 4 per cent, plus or minus 2 percentage points as per its mandate, under the government's monetary policy framework agreement with the RBI.

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