Home loans and car loans will now be cheaper with the Reserve Bank of India (RBI) cutting its key policy rates by 25 basis points. With this, the repo rate is now 5.75%. Repo rate is the key interest rate at which the RBI lends to banks. This comes at a time when there is uncertainty in the global markets and the economic growth in the country has slowed down. Overall, RBI has cut the key lending rate by 0.75% since February this year.
The rate cut is expected to reduce EMIs on home and auto loans, which should spur consumption and growth. This is also expected to reduce the debt repayment burden on corporates.
This is the third time RBI has cut the repo rate in 2019, after it cut the rate by 25 basis points in February to 6.25% and then in April to 6%
However, the markets were disappointed over a lower-than-expected rate cut. At 12.30 p.m., the S&P BSE Sensex traded 279.44 points or 0.70 per cent lower at 39,804.10 points, while the NSE Nifty50 was down 98.95 points or 0.82 per cent at 11,922.80 points.
RBI also changed the monetary policy stance from neutral to accommodative.
The monetary policy stated that the decision was taken due to the decline private final consumption expenditure (PFCE) and moderation in exports.
RBI’s Monetary Policy Committee (MPC) also revised its growth and inflation forecasts for the current financial year.
The policy statement said that the risks around the inflation trajectory come from uncertainties in the monsoon, unseasonal spikes in vegetable prices, international fuel prices and their pass-through to domestic prices, geo-political tensions, financial market volatility and the fiscal scenario
It has revised GDP growth downwards to 7% from 7.2%, while the Consumer Price inflation forecast for the first half of FY20 was revised to 3-3.1% from 2.9-3%, and to 3.4-3.7% from 3.5-3.8% in the second half.