The Reserve Bank made a higher-than-expected reduction in interest rates as the monetary policy committee (MPC) voted decisively to give the “highest priority” to economic growth amid a benign inflation outlook. But the unconventional quantum of reduction in the repo rate — 35 basis points (bps) — threw some market participants into a tizzy with future reductions becoming unpredictable. Interest rate changes are typically in 25 basis point increments. The cut brings repo rate to a nine-year low. Governor Shaktikanta Das came up with a multi-pronged attack to lower rates for consumers by promising adequate liquidity and reducing cost of capital for banks by lowering risk weights for consumer loans, except credit cards. The MPC was of the view that the standard 25 basis points might prove to be inadequate in view of the evolving global and domestic macroeconomic developments.

(Economic Times)