The repo rate is the rate at which the Reserve Bank lends short-term money to the banks, while the reserve repo rate is the rate at which the central bank borrows money from commercial banks.
India's Monetary Policy Committee cut its benchmark interest rate by 25 basis points on Thursday and moved to a more accomodative stance, just months after it had cautioned against rising inflation risks and said it was in a "calibrated tightening" mode. The six-member Monetary Policy Committee voted unanimously to switch its stance to neutral from "calibrated tightening" adopted in October.
Three of the five economists in CNBC-TV18's MPC expected the RBI to hold the repo rate at 6.50 percent and have asked for a neutral stance. Mr Das also hinted at more rate cuts in future as inflation is slowing down. With headline inflation around 4 percent, RBI may use policy space to boost growth.
"The central bank's commentary on inflation and growth support a dovish outlook for the policy", said Shashank Mendiratta, an economist with IBM in New Delhi, adding "The macro backdrop as such supports the RBI's stance".
Economic growth fell to a worse-than-expected 7.1% in the July-September quarter from 8.2%, dragged down by slower consumer spending and farm growth, below analysts forecast for a 7.4% increase.
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While four members of the MPC including Das voted for a rate cut, RBI deputy governor Viral Acharya and independent member Chetan Ghate, a professor at the Indian Statistical Institute were in favour of maintaining a status quo on rates.
RBI Governor Shaktikanta Das said, "we are constantly & continuously monitoring the liquidity situation and based on the requirement we will ensure that there is no liquidity scarcity".
The decision "restores growth maximisation as a secondary objective of the RBI".
Deviating from the practice of releasing the resolution of MPC in afternoon, the Reserve Bank of India (RBI) uploaded the policy statement it on its website at 11.45 am on February 7. "Both recent history and forward guidance make a compelling case for the rate cut". The governor also indicated that there was scope for further rate cuts this year if prices do not rise.
The rupee weakened to 71.69 to the dollar immediately after the decision, but it later strengthened to 71.42.