In the first monetary policy review under RBI Governor Urjit Patel, the interest rate has been cut by 0.25 per cent to six-year low of 6.25 per cent in a unanimous decision by the new rate-setting panel Monetary Policy Committee. The 6-member Monetary Policy Committee, headed by Patel, reduced repo rate or the short term rate at which central bank lends to banks, to 6.25 per cent. Consequently, the reverse repo rate has also come down by a similar percentage point to 5.75 per cent. The move will lead to reduction of lending rate by banks leading to lower EMI for housing, car loan and corporate borrowers.

Did You Know?

The discount rate at which a central bank repurchases government securities from the commercial banks, depending on the level of money supply it decides to maintain in the country’s monetary system. To temporarily expand the money supply, the central bank decreases repo rates (so that banks can swap their holdings of government securities for cash). To contract the money supply it increases the repo rates. Alternatively, the central bank decides on a desired level of money supply and lets the market determine the appropriate repo rate. Repo is short for repossession.