Mumbai /June, 6: 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. Thursday’s decision comes after conclusion of a three-day meeting of the MPC. With today’s cut, the RBI lowered the key interest for third time in a row to a level last seen in September 2010.
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.
Today’s rate cut comes as a relief to borrowers as equated monthly instalments (EMI) for home loans, car loans and other loans are set to come down. However, depositors would earn less on their bank investments.
“RBI reduced repo rate by 25 bps as expected. The change in stance to ‘accommodative’ 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. We maintain our call for another 25 basis points rate cut in August factoring in the benign inflation trajectory and the growing concerns on growth. However, transmission of the rate cuts will be key and the RBI should aim to maintain the liquidity, at least, at neutral over the next few months,” Suvodeep Rakshit, senior economist at Kotak Institutional Equities.
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.
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, RBI noted in the policy statement.
