RBI Reduces Repo Rate, Targets Inflation; Loan Borrowers May Get Benefit

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In a much needed boost to the banking sector and to inspire confidence in investment, the Reserve Bank of India (RBI) Governor on Thursday and slashed the repo rate by 25 basis points.

This is a first such step taken by Shaktikanta Das at the helm of the RBI. This move by RBI may reduce the loan borrowers rate of interest to 6.25% from the earlier rate of interest at 6.5%.

RBI Governor Shaktikanta Das said, “The need is to strengthen private investment activityand buttress private consumption.” The RBI went from ‘calibrated tightening” to “neutral” in regard to policy stance.

The 6-member Monetary Policy Committee (MPC) voted 4:2 in favour of rate cut. The repo rate reduction will be helpful to the BJP government in maintaining the inflation at its required target.

The RBI Governor further added, “The RBI meets (commercial) banks after the monitary policy meeting. The RBI to hold discussions with banks within next two-three weeks to discuss the interest rates… We only set policy rate… The decision on banks’ interest rates remain with them.”

The revised cut in rates if passed to the consumer by the commercial banks would lower monthly instalments for home and other loans.

The RBI stated, “These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 percent within a band of plus/minus 2 percent, while supporting growth.”

The last rate cut to 6 percent by RBI was in August 2017. The next meeting of the MPC is scheduled between April 2 to 4.

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