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Ahead of the policy, opinion was divided on whether RBI would cut rates and economists had cited many reasons for the central bank to stay put; the budget was expansionary and easing would put pressure on prices, RBI's policy stance of "calibrated tightening" and the fact that banks needed to attract Rs 20 lakh crore of deposits to fund credit needs according to a Crisil report.

"Consequently, the reverse repo rate under the LAF stands adjusted to 6.0 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 6.5 per cent". "The decision to change the monetary policy stance was unanimous", the RBI said in a release after the meeting.

But the decision, in a split vote that saw four members of the MPC vote in favour of a 25 basis point cut in the repo rate, deserves a more cautious welcome.

India's new RBI governor Shaktikanta Das "has delivered what the Modi government was hoping for", said Mark Williams, chief Asia economist of Capital Economics, in a note.

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.

RBI Governor Shaktikanta Das cut the interest rate by 0.25 percent to 6.25 percent, a move that will lead to reduction of lending rate by banks leading to lower EMI for housing, vehicle loan and corporate borrowers.

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Das also downplayed the risk of inflation rising due to the forecast of fiscal slippage in last week's budget, and said the MPC will only look at the headline inflation number and ignore core inflation that has proven sticky. The next meeting of the committee is scheduled in April. The RBI has forecast inflation to be in the range of 3.2-3.4 per cent in April-September 2019, lower than its earlier prediction of 3.8-4.2%.

The central bank pegged the growth in Gross Domestic Product at 7.4% in 2019-'20.

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.

This is Das' first monetary policy review after taking charge as the RBI Governor, replacing Urjit Patel.

The rate cut is in the right direction given that the inflation footprint has been benign for some time.

In a tweet, Economic Affairs Secretary Subhash Chandra Garg welcomed the rate cut and stance change, saying the MPC had come up with a "balanced and pragmatic policy statement". "Going by the guidance, there is room for a further rate cut".


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