The Reserve Bank of India (RBI) delivered another rate cut — the fifth in the year to boost the slowing economy. However, the move failed to cheer the market which was betting on a bigger rate reduction.
The six-member monetary policy committee decided to cut interest rates by 25 basis points (bps) to 5.1% with five members voting in favour of the quantum while R.H. Dholakia voted for a 40 bps cut. [100 bps = 1 percentage point] Between February and now, the central bank has reduced the policy rate by 135 bps.
GDP Growth Status
The central bank also revised its growth forecast for the current financial year, from 6.9% projected in the August policy, to 6.1%. Growth forecast for the first quarter of the next financial year was also trimmed to 7.2% from 7.4%. Inflation forecast for the second half of FY20 has been retained at 3.5-3.7%.
The rate cut comes after GDP growth for the first quarter of the current financial year plunged to a 25-quarter low of 5%.
Impact on lending rates
Equated monthly instalments on retail loans, such as home and auto loans, as well as credit to micro, small and medium-sized enterprises will become cheaper as banks have linked those loans to the repo rate, following a regulatory order.
Source: The Hindu