Loans may get cheaper as RBI eases repo rate

Updated: Feb 07, 2019, 14:17 IST | IANS | Mumbai

The central bank was more accommodating, changing its monetary policy stance from "calibrated tightening" to 'neutral'

Reserve Bank of India (RBI) Governor Shaktikanta Das (C) arrives to address a news conference in Mumbai on February 7, 2019. Pic/PTI
Reserve Bank of India (RBI) Governor Shaktikanta Das (C) arrives to address a news conference in Mumbai on February 7, 2019. Pic/PTI

The Reserve Bank of India (RBI) lowered interest rates on Thursday and shifted its stance from 'calibrated tightening' to 'neutral' after factoring a sharp fall in the inflation rate. The RBI's Monetary Policy Committee (MPC) cut the repo rate by 25 basis points to 6.25 percent by a 4 to 2 vote. The central bank thus cut the rate for the first time in 17 months.

This was the first monetary policy review for Shaktikanta Das who took over as the RBI Governor in the second week of December 2018. Consequently, the reverse repo rate under the under the liquidity adjustment facility stands adjusted to 6 percent and the marginal standing facility rate and the bank rate to 6.5 percent.

Das said that shift in stance to neutral provides flexibility to meet growth challenges. "Farm output was expected to decelerate in FY19. Continuing deflation in food and crude led to decline in headline inflation," he said.

The central bank forecasts consumer price inflation at 2.4 in January to March period, and 3.2 to 3.4 percent from April to September. While the decision to change the monetary policy stance was unanimous, Chetan Ghate and Viral Acharya voted to keep the policy rate unchanged.

The MPC reiterated its commitment to achieving the medium-term target for headline inflation of 4 per cent on a durable basis. The next meeting of the MPC is scheduled from April 2 to 4.

Repo rate is the rate at which the RBI lends money to commercial banks. A repo rate cut allows banks to reduce interest rates for consumers on loans, and lowers equal monthly instalments on home loans, car loans and personal loans. The economy is forecast to expand at a rate of 7.2 per cent this fiscal year and rank as one of the world's fastest growing major economies.

In the interim Budget for 2019-20, the government pledged to support poor farmers and reduced tax burden for the middle class in a bid to boost consumption and growth before the general elections due in April.

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