RBI Monetary Policy 2019: The Reserve Bank of India’s Monetary Policy Committee (MPC), led by Governor Shaktikanta Das, on 6 June 2019 unanimously lowered 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.
Repo is the rate at which the central bank lends to commercial lenders, and the cut signalled a drop in cost of funds for corporates and individual borrowers though domestic banks have not been very efficient in quickly passing on the benefits of past rate cuts to their customers.
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.
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.