In order to boost the economy, RBI reduced the Repo Rate by 25 basis points or 0.25 per cent from 6% to 5.75% today. This cut is the consecutive third cut in row.
- The MPC committee led by Governor Shaktikanta Das on Thursday unanimously lowered key lending rate or the Repo rate by 25 basis points or 0.25 per cent to 5.75percent.
- Also, the policy stance was changed as ACCOMMODATIVE from NEUTRAL.
- Thus, RBI lowered the key interest for third time in a row to a level of September 2010.
- It may be noted that two-thirds of 66 economists had expected the Monetary Policy Committee to announce a 25-basis-points cut in the repo rate to 5.75 per cent.
- However, depositors would earn less on their bank investments.
Effects of Rate Cut:
The rate cut of today will result in the following:
- The rate cut is a relief to borrowers as equated monthly installments (EMI) for home loans, car loans and other loans are set to come down.
- Debt markets will take this as a significant positive move though most of the rate cut cycle is probably over.
- The real effect would be felt when, transmission of the rate cuts will be done and RBI should aim to maintain the liquidity, at least, at neutral over the next few months.
- This rate cut will mean, that India lose its status as the fastest growing major economy to China, which showed a growth of 6.4 per cent in the three months’ period, as compared to GDP or Gross Domestic Product of India, which grew only to 5.8 percent in the quarter ended March 31, 2019.
- The Reserve Bank of India has lowered its GDP target for financial year 2019-20 to 7 per cent from 7.2 per cent.
- The consumer inflation for the first half of financial year 2019-20 has been pegged in range of 3-3.1 per cent with risks evenly balanced, according to an RBI release.
- REPO rate is the rate at which commercial banks borrow short-term funds from RBI.