Loans May Get Cheaper As RBI Cuts The Repo Rate By 25 Basis Points

| February 7 , 2019 , 12:44 IST

Shaktikanta Das led Reserve Bank of India (RBI) on Thursday cut repo rate by 25 basis points (bps) to 6.25 per cent.

The central bank has also changed its monetary policy stance to "neutral" from "calibrated tightening" as inflation stood below the central bank’s 4 per cent target.

The reverse repo rate now stands adjusted to 6 per cent, and the marginal standing facility (MSF) rate and the bank rate to 6.5 per cent, the RBI said in its sixth bi-monthly policy statement for 2018-19.

Today's RBI policy statement is the first under Governor Shaktikanta Das, who took charge in December last year.

The repo rate is the rate at which the Reserve Bank lends short-term money to the banks, while the reverse repo rate is the rate at which the central bank borrows money from commercial banks.

 The reverse repo rate has been reduced to 6 per cent. Usually, when RBI cuts repo rate, banks typically pass on the benefit to the customers.

If the banks decide to pass on the rate cut, then the auto, home and other loans are likely to get cheaper.

The RBI said in a statement,  "turning to the growth outlook, GDP growth for 2018-19 in the December policy was projected at 7.4 per cent (7.2-7.3 per cent in H2) and at 7.5 per cent for H1:2019-20, with risks somewhat to the downside."

"Domestic market rallied 1 per cent led by broad-based buying across sectors, Nifty breached its narrow trading band of 10650-10950 on the expectation of a shift in RBI's policy stance and strong FII inflows. Additionally, drop in bond yield and marginal strength in rupee added strength to this expectation," said Vinod Nair, head of research, Geojit Financial Services.

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In its December monetary policy review, the RBI had kept interest rates unchanged but held out a promise to cut them if the upside risks to the inflation do not materialise.

Data released by the Central Statistics Office (CSO) showed consumer price index (CPI) based inflation at an 18-month low of 2.19 per cent in December against 2.33 per cent a month ago, as food prices continued to slide.