NEW DELHI: The
Reserve Bank of India (RBI) on Wednesday reduced repo rate by 35 basis points (bps) to 5.40 per cent. This is the fourth straight rate cut from the RBI and it results in an overall decline of 110 bps or 1.1 percentage point in the key lending rate.
Reverse repo rate stood at 5.15 per cent. The central bank has maintained its "accommodative" stance.
Repo rate is the rate at which the RBI lends to banks, while reverse repo rate is at which it borrows from banks.
"The decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth," the Reserve Bank said in its bi-monthly monetary policy (MPC) statement.
"GDP (gross domestic product) growth revised to 6.9 per cent for this year from the earlier projection of 7 per cent," it added.
When the RBI cuts rates, banks are expected to pass on the benefit to consumers and reduce interest rates on home, auto, personal or other loans which may result in lower EMIs (equated monthly instalments).
RBI governor Shaktikanta Das, while briefing the media, said that the rate cut is balanced and assured sufficient liquidity to all required sectors.
The last time the RBI made so many back-to-back cuts was after the global financial crisis over a decade ago (2008), when most major central banks were desperate to revive economic growth.
Reducing interest rates would please finance minister Nirmala Sitharaman, who delivered her first budget last month after being promoted by Prime Minister Narendra Modi following his re-election in May.
“I’ll honestly wish (for a) rate cut ... a significant rate cut would do a lot of good for the country,” Sitharaman said in an interview.
Running at 3.18 per cent in June, retail inflation has remained below the central bank’s medium-term target of 4 per cent for almost a year.
Almost 80 per cent of the economists surveyed by news agency Reuters had expected the Reserve Bank to cut its benchmark repo rate by 25 bps.
The next meeting of the MPC is scheduled during October 1, 3 and 4.
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