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Thursday, June 6, 2019

RBI cuts repo rate by 25 bps, Loans may get cheaper

RBI cuts repo rate by 25 bps, Loans may get cheaper
New Delhi: The Reserve Bank ofIndia on Thursday, 6th June 2019 cut its benchmark repo rate by 25 basis points (bps). The rate cut, the third announced by the central bank in 2019, was anticipated by economists.

The change in repo rate, the rate at which the central bank lends money to commercial banks, will lead to lower interest rates on new bank loans.


India is among central banks across Asia shifting to looser monetary policy to boost their economies amid risks from the US-China trade war. Philippines, Malaysia and New Zealand eased last month, while Australia cut interest rates this week for the first time in almost three years.


In its first meeting after the new Narendra Modi government took charge, the Reserve Bank of India (RBI) announced a 25 basis points reduction in the policy repo rate.


Amid slowing GDP and markets in stress ever since IL&FS defaulted, analysts were expecting at least a 25 basis points reduction in the policy repo rate. The demand for monetary easing was in the wake of relatively unstable inflation trend and big drop in crude oil prices.


The relationship between the RBI and the government remained contentious through much of the period during the government’s previous stint, which culminated in the resignation of then governor Urjit Patel. The Monetary Policy Committee (MPC), headed by Governor Shaktikanta Das, cut the policy repo rate twice in a row in 2019.


In the last MPC meet in April 2019, the RBI had reduced the policy repo rate by 25 basis points to six per cent, while maintaining a neutral stance, as retail inflation was contained within the 4 per cent target. In February, the MPC had voted by a 4:2 majority in favour of reducing the policy repo rate by 25 basis points.

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