RBI cuts repo rate by 25 basis points; loan EMIs likely to fall

MUMBAI: In its first bi-monthly monetary policy meet of this financial year (FY19-20), the Reserve Bank of India (RBI) on Thursday decided to cut repo rate by 25 basis points (bps) or 0.25 per cent to 6 per cent. The RBI has maintained the policy stance at "neutral".

The RBI's six-member rate setting panel headed by RBI governor Shaktikanta Das on Tuesday started its 3-day monetary policy meet amid expectations of a cut rate to boost economic activities. This is also the first back-to-back rate cut since the Monetary Policy Comittee (MPC) was formed in late 2016.

Das has already held meetings with stakeholders including industry bodies, depositors association, MSME representatives and bankers. Since taking over at the central bank in December last year, the RBI governor has taken a series of steps to help support economic growth and spur lending.

With inflation well below the RBI's mandate of 4 per cent and a push towards the economic activities amid fears of global economic slowdown supported the RBI's move.

The central bank had reduced the repo rate by 25 basis points in February, after a gap of 18 months. The interest rate cut would provide relief to borrowers in the election season.

Repo rate is the rate at which the central bank lends short-term money to the commercial banks. And, reverse repo rate is at which the RBI borrows money from the commercial banks. The reverse repo rate has also been reduced to 5.75 per cent from 6 per cent earlier.

Banks take cue from RBI’s monetary policy stance in hiking or cutting lending rates. For instance, if the Reserve Bank lowers repo rate, banks are expected to pass on the benefit to retail customers.

With back-to-back rate cuts, home, auto or personal loan EMIs (equated monthly inslallments) are likely to go down.

The RBI’s decision comes a week before the general election kicks off on April 11, in which Prime Minister Narendra Modi will seek a second term in office.