The Reserve Bank of India on Thursday lowered the repo rate, or the interest rate at which it lends to commercial banks, by 25 basis points to 5.75%, the lowest in nine years. This is the third time this year that the central bank has cut the rate. The revision is likely to lower interest rates on new bank loans.
The reverse repo rate, too, was lowered to 5.50% from 5.75%. The reverse repo rate is the rate at which the central bank borrows money from commercial banks. In February, the RBI had lowered the repo rate by 25 basis points to 6.25%, and in April, further to 6%.
All the six members of the Monetary Policy Committee voted unanimously for a rate cut and switching its policy stance to accommodative from neutral. RBI Governor Shaktikanta Das said the shift in the stance meant that an increase in interest rates is “off the table”, PTI reported. Das wanted banks to expedite the transmission of the current reduction in rates as well as similar ones that happened in February and April.
The rate cut is expected to lower home, auto and other loan EMIs. The reduction in interest rate will also help boost credit growth, helping to check the slowdown in the economy ahead of the new government’s first budget on July 5.
The decision was announced after a three-day meeting of the Monetary Policy Committee, headed by Das. The committee projected a 7% economic growth during the current financial year – lower than the projection of 7.2% growth made in April. “Global economic activity has been losing pace after a somewhat improved performance in Q1, reflecting further slowdown in trade and manufacturing activity,” the committee’s statement said. “Growth impulses have weakened significantly.”
The Monetary Policy Committee also raised the forecast for retail inflation marginally to 3%-3.1% for April-September 2019. The previous forecast had pegged a 2.9%-3.0% inflation during the period.
The rate reductions came days after government data showed that the growth rate in India’s Gross Domestic Product had declined to 5.8% in the last quarter of the financial year 2018-’19 – the slowest pace of growth in 17 quarters. The Ministry of Statistics and Programme Implementation also revised the GDP growth for 2018-’19 downwards to 6.8% from 7.0% estimated earlier. The economy had grown at a rate of 7.2% in 2017-’18.