RBI reduces repo rate by 25 points, loans may get cheaper

RBI repo rate

The implication of the RBI reducing the repo rate is that your EMIs will become cheaper (only if you got your loan on a floating interest rate). (Photo: Reuters)

The Reserve Bank of India today reduced the repo rate — the interest rate at which it lends money to banks — by a marginal 25 basis points. The new repo rate now stands at 6.25 from the earlier 6.50.

The implication of the RBI reducing the repo rate is that your EMIs are likely to become cheaper (only if you got your loan on a floating interest rate).

Among the other decisions taken by the RBI’s Monetary Policy Committee were: Adjusting the reverse repo rate (the interest rate at which banks lend money to the RBI) to 6.0 per cent, and the marginal standing facility (MSF) rate and the bank rate to 6.5 per cent.

The MPC also said that it is changing its policy stance from calibrated tightening to neutral. A ‘calibrated tightening’ stance means that the likelihood of a cut in the repo rate (remember: this is the rate that impacts you) is unexpected.

In a statement, the Reserve Bank of India’s Monetary Policy Committee said that its decisions today were taken with the objective of achieving a consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent.

Here are the the highlights of the decisions taken by the Reserve Bank of India’s Monetary Policy Committee:

  • RBI cuts key lending rate (repo) by 0.25 pc to 6.25 pc
  • Reverse repo rate cut to 6 pc, bank rate to 6.5 pc, CRR unchanged at 4 pc
  • Headline inflation estimates revised down to 2.8 pc in March quarter, 3.2-3.4 pc in first half of next fiscal and 3.9 pc in Q3 of FY’20
  • Projects GDP growth to accelerate to 7.4 pc next fiscal, from 7.2 pc in 2018-19
  • Pegs April-September growth in range of 7.2-7.4 pc, and 7.5 pc in Q3 of 2019-20
  • Oil price outlook hazy, trade tensions to weigh on global growth prospects
  • Union budget proposals to boost demand by raising disposable incomes
  • To revise definition of bulk deposits as single rupee deposits of Rs 2 crore and above from Rs 1 crore currently
  • To issue guidelines to harmonise major categories of NBFCs
  • Proposes to set up a task force on Offshore Rupee Markets to ensure Rupee value stability
  • Removes restrictions on Foreign Portfolio Investors investing in corporate debt market
  • To come out with discussion paper on Payment Gateway Service Providers and Payment Aggregators
  • Hikes limit of collateral-free agricultural loans to Rs 1.6 lakh from Rs 1 lakh, to help small and marginal farmers
  • Constitutes Working Group to review agricultural credit
  • Monetary policy committee votes 4:2 in favour of rate cut, unanimous on change in stance
  • 2 MPC members Chetan Ghate and Viral Acharya were for status quo in rates
  • Next meeting of the MPC from April 2-4.