Mumbai, Oct 4 (IANS): The Monetary Policy Committee of the Reserve Bank of India (RBI) cut a key lending rate by 25 basis points on Tuesday at the conclusion of its first meeting over two days, bringing much relief to commercial banks and India Inc.

With the decision, the repurchase rate, or the short-term lending rate charged by the central bank on borrowings by commercial banks, stands lowered to 6.25 per cent. The reverse repurchase rate also automatically stands lowered to 5.75 per cent. 

This was the first meeting of the new policy panel, constituted by the government with the primary mandate to ensure a retail inflation of 4 per cent, plus or minus a band of two percentage points.

The panel said in a statement that the decision taken on Tuesday was consistent with an accommodative stance, with the objective of achieving the inflation target. 

All six members of the panel, chaired by RBI Governor Urjit Patel, voted in favour of the monetary policy decisions -- the minutes of which will be released on October 18.

The markets responded to the decision with a spike in key indices. The sensitive index of the BSE which was ruling at around 28,250 points just ahead of the announcement, rose to around 28,380 points. 

Thereafter, the key index was ruling at 28,353.34 points, with a gain of 110.05 points, or 0.39 per cent.