Mumbai: The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) slashed the short-term lending rate, or repo rate, by 25 basis points to 6 per cent at its third bimonthly policy review. Equity benchmarks BSE Sensex and NSE Nifty have already factored in a rate cut. Both the indices closed at their lifetime high levels on Tuesday.
A poll conducted by a business daily among 20 market participants showed 17 of them have voted for a 25 basis points cut in repo rate – the rate at which high-street lenders borrow short-term funds from the central bank – on Wednesday. The repo rate now stands at 6.25 per cent.
The BSE Sensex on Tuesday closed 60.23 points, or 0.19 per cent, higher at 32,575 on August 1, while NSE’s Nifty50 index settled 37.55 points, or 0.37 per cent, up at 10,114.
RBI’s move comes on the back of inflation running well below its target for consecutive quarters. The central bank had last cut key rates in October 2016. The current rate of 6 per cent is the lowest since November 2010.
A significant moderation in retail inflation over the past three months had reinforced calls for further monetary policy easing from the RBI, which changed its stance to neutral from accommodative at the beginning of the year.
The central bank on Wednesday said it would retain its neutral stance, warning it expected inflation to rise but pinning further moves on the economic data.