RBI cuts key interest rate by 0.25 per cent; loan EMIs likely to get cheaper
HYDERABAD: In line with the expectations, the RBI reduced key benchmark policy rates by 25 basis points (bps) in a 4-2 split vote on Thursday. The repo rate at which commercial banks borrow from the central bank, now stands at 6 per cent.
However, the RBI's Monetary Policy Committee (MPC), the desginated inflation-nutter, retained its stance at neutral, as against market speculation of moving to an accommodative stance. Such a move would have sent a signal of entering the rate easing cycle.
Expect home and auto loan EMIs to become cheaper by say Rs 300-400 per month if not by Rs 600-700, which needs a more charitable 50 bps repo rate cut.
This is the second consecutive rate cut under RBI Governor Shaktikanta Das, but it remains to be seen if banks will pass on the benefits to consumers. In February, though Das reduced repo rate by 25 bps, banks transmitted a mere 5-10 bps citing high credit-deposit ratio.
The reverse repo rate stands adjusted to 5.75 per cent, while the marginal standing facility (MSF) rate and the Bank Rate to 6.25 per cent.
These 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 up or down, while supporting growth, the MPC said in a statement.
The benchmark indices Sensex and Nifty slipped into negative territory after a flat opening Thursday.
Assuming a normal monsoon in 2019, and despite considering other factors including sticky core inflation, headline inflation is revised downwards to 2.4 per cent during the fourth quarter of FY19, 2.9-3.0 per cent in the first half of FY20 and 3.5-3.8 per cent in the second half of FY20, with risks broadly balanced.
GDP growth for FY20 is projected at 7.2 per cent – in the range of 6.8-7.1 per cent in the first half of the current fiscal and 7.3-7.4 per cent rest of the year.