RBI Cuts Rate To Lowest In 9 Years To Boost Growth, Loans May Get Cheaper

The Reserve Bank of India had reduced the repo rate by 25 basis points each in its February and April policy reviews.

Shaktikanta Das said the RBI would ensure a "faster and higher" transmission by commercial banks

Highlights

  • RBI lowered repo rate by 25 basis points or 0.25% to 5.75%
  • It also changed the policy stance to "accommodative" from "neutral"
  • With today's cut, RBI lowered the key interest for third time in a row
The Reserve Bank of India's Monetary Policy Committee (MPC), led by Governor Shaktikanta Das, on Thursday unanimously lowered key lending rate or repo rate by 25 basis points or 0.25 per cent to 5.75 per cent. The six-member committee also changed the policy stance to "accommodative" from "neutral". Repo rate is the interest rate at which commercial banks borrow short-term funds from the RBI. The rate cut comes after official data last month showed the country's GDP or gross domestic product grew 5.8 per cent in the quarter ended March 31. That meant India lost its status as the fastest growing major economy to China, which clocked a growth of 6.4 per cent in the three-month period.

Here are 10 things to know:

  1. With today's cut, the RBI lowered the key interest for third time in a row to a level last seen in September 2010.

  2. The RBI's move to lower the repo rate met economists' estimates. Two-thirds of 66 economists in a poll conducted by news agency Reuters ahead of the release of GDP data had expected the Monetary Policy Committee to announce a 25-basis-points cut in the repo rate to 5.75 per cent.

  3. The reduction comes as a relief to borrowers as equated monthly instalments (EMI) for home loans, car loans and other loans are set to come down.

  4. However, depositors would earn less on their bank investments.

  5. Many economists had expected the central bank to switch to an "accomodative" stance. 

  6. “Liquidity in the banking system has seen a movement from deficit to positive zone. It is important to see this situation continues to ensure credit transmission,” said Lakshmi Iyer, chief investment officer (debt) and head products, Kotak Mahindra Asset Management Company. (What experts say)

  7. In a press conference after the release of the policy statement, Mr Das said that the central bank would ensure a "faster and higher" transmission by commercial banks to pass on the benefit of lower interest rates to their customers.

  8. "The change in stance was a bit of a surprise. Debt markets will take this as a significant positive move though most of the rate cut cycle is probably over. The tone of the RBI policy was dovish and highlights the concerns on growth," said Suvodeep Rakshit, senior economist at Kotak Institutional Equities.

  9. The Reserve Bank of India lowered its GDP growth target for financial year 2019-20 to 7 per cent, from 7.2 per cent in April.

  10. The consumer inflation for the first half of financial year 2019-20 has been pegged in the range of 3-3.1 per cent with "risks evenly balanced", the RBI noted in its bi-monthly policy statement.



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