RBI cuts repo rate by 25 bps to decade-low of 5.15% to revive growth; home, auto loans to become cheaper – Firstpost


Mumbai: Home, auto and other loans are set to become cheaper after the Reserve Bank of India (RBI) on Friday cut interest rates for a record fifth straight time to almost a decade low as it moved aggressively to revive economic growth languishing at six-year lows.

With all six members of the Monetary Policy Committee (MPC) voting in favour of a rate cut and for retaining the accommodative stance, the benchmark repurchase rate was cut by 25 basis points to 5.15 percent. The previous lowest repo rate of 5 percent was recorded in March 2010.

Following the rate cut, the reverse repo rate was reduced to 4.9 percent.

The RBI revised downwards its estimate for GDP growth in the current fiscal to 6.1 percent from 6.9 percent it had previously estimated after lower-than-expected 5 percent growth rate in April-June and no substantial uptick in the following quarter.

The repo rate cut is aimed at pushing consumption up during the ongoing festival season by reducing borrowing costs for home and auto loans, which are now directly linked to this benchmark.

RBI Governor Shaktikanta Das said as long as the growth momentum remains as it is now and growth revives, the MPC will continue with an accommodative stance while ensuring inflation remains within the target.

“RBI will continue accommodative stance as long as it is necessary and growth revives,” he said.

In the four previous rate cuts since February, the RBI had cut interest rates by 110 basis points whose transmission to borrowers in form of lower lending rate has “remained staggered and incomplete”, the central bank said in a statement.

As against the cumulative policy repo rate reduction of 110 bps during February-August 2019, the weighted average lending rate (WALR) on fresh rupee loans of commercial banks declined by 29 bps. However, the WALR on outstanding rupee loans increased by 7 bps during the same period.

Central banks around the world are loosening monetary policy to offset a global slowdown, worsened by US-China trade tensions.

The rate cut by the RBI follows a series of fiscal steps taken by the government over the last six weeks to spur growth, including steepest ever cut in tax paid by companies, cost the exchequer Rs 1.45 lakh crore.

Asked if the corporate rate cut would impact fiscal deficit target of 3.3 percent of the GDP, Das said the government has stated that it will maintain fiscal deficit target and “we have no reason to doubt that”.

He said the impact of the 135 bps rate cut will “take time” to filter in.

“While the recent measures announced by the government are likely to help strengthen private consumption and spur private investment activity, the continuing slowdown warrants intensified efforts to restore the growth momentum,” the RBI said.

On the mounting problems in the banking system that potentially could hurt lending, Das reiterated that the banking system “remains sound and stable” and there is no reason for “unnecessary panic”.

The central bank raised its near-term inflation forecast slightly to 3.4 percent for the second quarter of the fiscal started in …read more

Source:: Daily times


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