The Reserve Bank of India today cut the repo rate by 25 basis points to 6 per cent as was widely expected. Repo rates are interest rates at which the RBI lends money to banks and any drop in these rates signals a lowering of interest rates.

The move was largely expected as retail inflation had hit a record low of 1.54 per cent in the month of June. The Reserve Bank of India, Monetary Policy Committee (MPC), which concluded its two day meeting today largely resisted calls of a 50 basis points cut in interest rates. The cut was also on account of sluggish industrial growth which has dragged down the GDP to 6.1 per cent for the March quarter.

Today's cut in interest rates could also bring down interest rates on loans across the board. We could now see a cut in interest rates across home loans, auto loans etc.

The country's central bank has also cut the reverse repo rates to 5.75%. "The decision of the MPC is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium -term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth," the central bank said in its statement.

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