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RBI Cuts Key Interest Rate Week Before Election, Loans Set To Get Cheaper

RBI Cuts Key Interest Rate Week Before Election, Loans Set To Get Cheaper

Four out of the six members of the Monetary Policy Committee voted in favour of a 25 Basis Points Cut in Repo Rate.

Banks need to do more to pass on lower rates to customers: RBI governor

GDP growth projected at 7.2% for financial year 2019-20, says RBI

The Reserve Bank of India (RBI) on Thursday cut its key interest rate by 25 basis points or 0.25 % to 6 %, in a widely expected move to propel the economy. Announcing a back-to-back cut in the repo rate just a week before the national election, the RBI’s monetary policy committee also maintained its neutral stance on the trajectory of interest rates going ahead.

Repo rate is the key interest rate at which the RBI lends short-term funds to commercial banks.

More than 85% of the nearly 70 economists polled by news agency Reuters had expected the central bank to cut the benchmark lending rate by 25 basis points to 6.00 % today.

The central bank projected GDP growth at 7.2 % for financial year 2019-20, according to its first policy statement of financial year 2019-20. The economic growth is expected to be in the range of 6.8-7.1 % in the first half of the current financial year, and in the range of 7.3-7.4 %in the second half with “risks evenly balanced”.

For the first half of the current financial year, which began on April 1, the central bank expects inflation at 2.9-3.0 %, and 3.5-3.8 % in the second half.

Thursday’s rate cut – the second this year – means commercial banks will have more room to pass on the benefit of lower lending rates to loan borrowers.

Since the last policy review in February, the commercial banks have lowered their MCLRs (marginal cost of funds-based lending rates) marginally, but more needs to be done, RBI Governor Shaktikanta Das told reporters in a press conference. “There has to be appropriate and effective transmission of rates,” he said.

The latest policy statement comes after the first bi-monthly review meeting of financial year 2019-20 by the Monetary Policy Committee which began on April 2.

Consumer inflation – gauged by the Consumer Price Index (CPI) – picked up to 2.57 per cent in February from the 19-month low of 1.97 per cent the previous month.

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