RBI cuts repo rate by 25 basis points to 6.25%

The Reserve Bank of India’s Monetary Policy Committee on Friday cut the repo rate by 25 basis points, lowering it to 6.25% from 6.5%.

This was the first rate cut initiated by the central bank in five years. The last rate cut was announced in May 2020, when the Reserve Bank slashed rates by 40 basis points to counter the adverse economic impact of the Covid-19 pandemic.

The repo rate is the interest rate at which the central bank lends money to commercial banks. The Monetary Policy Committee decides on changes to it every two months.

A basis point is one-hundredth of a percentage point. Basis points are used to describe the percentage change in the value of a financial instrument.

Central banks usually reduce repo rates to stimulate economic growth by making borrowing cheaper for individuals and businesses. This translates to lower equated monthly instalments, or EMIs, for borrowers.

The Monetary Policy Committee was unanimous in its decision to cut the repo rates in its 53rd meeting held from Wednesday to Friday. The committee also decided to continue with the neutral monetary policy stance, focusing on aligning inflation targets while supporting growth.

“These decisions are in consonance with the objective of achieving the medium-term target for consumer price index inflation of 4% within…

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