New Delhi: The Reserve Bank of India (RBI) has slashed its key lending rate - the repo rate - by 0.25 percentage points to 7.25 percent, giving hope to consumers of lower home loan EMIs and cheaper bank capital for companies to invest and hire more.

However, RBI governor Raghuram Rajan kept two key main rules unchanged. The cash reserve ratio (CRR) that would have given banks more funds to lend and allow them to lower loan rates by a higher extent and disappointing markets, which were expecting the RBI to cut the statutory liquidity ratio (SLR).

The SLR, the proportion of deposits banks should park in government bonds, stands at 21.5 percent, while the cash reserve ratio (CRR), the proportion of deposits banks have to park with the RBI, stands at 4 percent.

The repo rate cut will likely goad companies to add capacities, invest, hire, and prompt people to spend on cars, houses and other goods and help the budding recovery in India.

On the other hand, a lower repo will reduce banks' borrowing costs, which in turn, might prompt them to cut their "base rates," the floor interest rate on which lending rates for final auto, home and corporate borrowers are fixed.

A lower repo can lead to lower floating home loan rates, which move accordingly with base rates, and bring satisfaction to customers, who have been paying large portions of their income every month for repaying housing loans.

The current retail inflation in India, the RBI's main guide for interest-related decisions, stood at a four-month low of 4.87 percent, giving more room for the RBI to slash interest rates.

In April, many banks including State Bank of India (SBI), HDFC Bank and ICICI Bank announced cuts in their "base rates," leading to a fall in EMIs for some class of current and new borrowers.

The RBI said will keep a close watch on monsoon rains this year in the backdrop of the prediction of a below-normal monsoon for the second year. It expects inflation rates to rise up to 6 percent by January 2016, from the earlier forecast of 5.8 percent on the back of deficient summer rains and higher service tax rates that have been increased to 14 percent from 12.36 percent earlier.

In 2015-16, the central bank expects GDP to grow at 7.6 percent, down from the earlier forecast of 7.8 percent, although industrial production has been recovering, albeit unevenly.