Home loans to become cheaper as RBI cuts repo rate by 25 basis points

The Reserve Bank of India's Monetary Policy Committee (MPC), led by Governor Shaktikanta Das, unanimously lowered key lending rate or repo rate by 25 basis points or 0.25 percent to 5.75 percent. The six-member committee also changed the policy stance to "accommodative" from "neutral". Repo rate is the interest rate at which commercial banks borrow short-term funds from the RBI. The rate cut comes after official data last month showed the country's GDP or gross domestic product grew 5.8 percent in the quarter ended March 31. That meant India lost its status as the fastest growing major economy to China, which clocked a growth of 6.4 percent in the three-month period.

Here are 10 things to know:

1. With this cut, the RBI lowered the key interest for the third time in a row to a level last seen in September 2010.

2. The RBI's move to lower the repo rate met economists' estimates. Two-thirds of 66 economists in a poll conducted by news agency Reuters ahead of the release of GDP data had expected the Monetary Policy Committee to announce a 25-basis-points cut in the repo rate to 5.75 percent.

3. The reduction comes as a relief to borrowers as equated monthly installments (EMI) for home loans, car loans, and other loans are set to come down.

4. However, depositors would earn less on their bank investments.

5. Many economists had expected the central bank to switch to an "accommodative" stance.

6. “Liquidity in the banking system has seen a movement from deficit to a positive zone. It is important to see this situation continues to ensure credit transmission,” said Lakshmi Iyer, chief investment officer (debt) and head products, Kotak Mahindra Asset Management Company.

7. In a press conference after the release of the policy statement, Mr. Das said that the central bank would ensure a "faster and higher" transmission by commercial banks to pass on the benefit of lower interest rates to their customers.

8. "The change instance was a bit of a surprise. Debt markets will take this as a significant positive move through most of the rate cut cycle is probably over. The tone of the RBI policy was dovish and highlights the concerns on growth," said Suvodeep Rakshit, senior economist at Kotak Institutional Equities.

9. The Reserve Bank of India lowered its GDP growth target for the financial year 2019-20 to 7 percent, from 7.2 percent in April.

10. The consumer inflation for the first half of the financial year 2019-20 has been pegged in the range of 3-3.1 percent with "risks evenly balanced", the RBI noted in its bi- monthly policy statement.

News Source: NDTV, Url: https://bit.ly/2ZhR0tj

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