RBI cuts lending rate by 25 basis points, takes it to six-year-low

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Urjit PatelIn a festive season offer, the Reserve Bank of India (RBI) on October 4 cut repo rate by 25 basis points to a six-year-low of 6.25 per cent. All six members of the monetary policy committee (MPC) in favour of cutting repo rate.

In Urjit Patel’s maiden announcement as RBI Governor, reverse repo rate stood at 5.75 per cent and, marginal standing facility (MSF) rate and Bank Rate at 6.75 per cent.

Tuesday’s policy review was the RBI’s fourth bi-monthly policy statement for the year 2016-17 was announced on October 4 afternoon instead of the existing practice of 11 am.

Patel, who succeeded as the RBI Governor after Raghuram Rajan last month, is joined by two RBI officials and three government nominated academics on MPC.

Earlier, ex-RBI governor Raghuram Rajan had the authority to bypass his advisors in matters of interest rate cuts. But his successor, Patel will have to go with the suggestion given by the MPC—this is for the first time that say on interest rates has shifted to the six-member panel.

The central bank has cut the repo rate as many as five times since January last year. It may be noted repo rate is the rate at which RBI lends to other banks.

Patel also has to ensure that there is no let-up of the deadline set by Rajan—March 2017—for banks to clean up their balance sheets.