New Delhi, June 6: In its June monetary policy report, Reserve Bank of India (RBI) has decided to slash repo rate for the third consecutive time. With the fresh cut, the rate at which the central bank lends to the commercial banks has been scaled down from 6 to 5.75 per cent. The 25-basis point cut is expected to turn home loans and EMIs cheaper.
The RBI in April lowered its key lending rate by 25 basis points (bps) to 6 per cent. Before that, in February, the MPC had voted to lower the repo rate by 25 bps to 6.25 per cent. Macro Environment Conducive for RBI to Cut Rates
GDP Projection Revised:
GDP projection adjusted to 7.00 % from 7.2 % in earlier projection. pic.twitter.com/1i24rlyM1z
— ANI (@ANI) June 6, 2019
A booster dose in the form of another rate cut was expected from the Reserve Bank to rekindle economic growth which has been stunted by low demand, receding production and stagnant wages.
Economy watchers contend that subdued food prices coupled with growth concerns allows RBI to aggressively cut key lending rate. Market observers have prescribed a range between 25 and 50 basis points to bring down the cost of finance and give impetus to consumption growth.
Overall, the apex bank might cut repo rate by 75-100 basis points throughout this fiscal, if inflation target remains in sight. RBI's medium-term target for consumer price index (CPI) inflation is of "4 per cent within a band of +/- 2 per cent".
"Slower growth and lower inflation has given the RBI room to go in for a repo-rate cut," Sunil Kumar Sinha, Director -- Public Finance and Principal Economist India Ratings and Research (Fitch Group) said.
As per a Finance Ministry report in March, though easing of monetary policy has the potential to support growth, the recent cuts in repo rate are yet to be transmitted to the weighted average lending rate of banks, thus the effects of the easing on investment activity are yet to manifest.
(With IANS inputs)