The Reserve Bank of India, country’s apex bank, has slashed its repo rate by 25 basis points to bring it to 6% on Thursday. This reduction of the rate is expected to add a bit of boost to the economy. It may also prompt commercial banks to offer cheaper loans as well as bring down EMI costs.
Besides, indirectly, it may bring cheers to common people during the election season.
The RBI has maintained a ‘neutral stance’ on the interest rate trajectory, means, going forward, the interest rates can swing either way.
Repo rate is the key interest rate at which the RBI lends short-term funds to commercial banks. Reverse repo is the rate at which the RBI borrows money from the banks.
The RBI’s six-member monetary policy committee, that decides the interest rates besides other policies, started its 3-day meeting with RBI Governor Shaktikanta Das as its head. Four out of the six members of the Monetary Policy Committee voted in favour of a 25 basis points cut in repo rate, while the other two voted to keep the rate unchanged.
RBI’s repo rate cut was in lines with the industry experts who predicted such a development by the central bank. This is the second repo rate cut by the RBI this year.
The RBI had reduced repo rate by 25 basis points in February this year, after a gap of almost one and half year.
The central bank projected GDP growth at 7.2 per cent for financial year 2019-20, according to its first policy statement of financial year 2019-20. The RBI said it expects economic growth to be in the range of 6.8-7.1 per cent in the first half of the current financial year, and in the range of 7.3-7.4 per cent in the second half with “risks evenly balanced”.
Inflation is likely to remain benign in the short term, it noted. Assuming a normal monsoon in 2019, the RBI lowered its CPI inflation projection to 2.4 per cent in the fourth quarter of 2018-19.