RBI cuts lending rates by 25 basis points; GDP growth projected at 7.4 pc for FY 2019-20
Mumbai, Feb 7 : Home loans are expected to get cheaper as the RBI on Thursday reduced lending rates by 25 basis points to 6.25 per cent, for the first time in 17 months, shifting its stance from 'calibrated tightening' to 'neutral.'
The RBI's Monetary Policy Committee (MPC) cut the repo rates by 25 basis points to 6.25 per cent by 4 to 2 votes, said RBI Governor Shaktikanta Das after the MPC meeting.
This was first monetary policy review for Shaktikanta Das who took over as the RBI Governor in second week of December 2018.
Last time the RBI cut rates was in August of 2017. It left them unchanged in the last two monetary policy announcements held in October and December 2018, and hiked the rates twice in June and August. The rates were increased by 25 bps both times.
Repo rate is the rate at which the RBI lends money to commercial banks. A repo rate cut allows banks to reduce interest rates for consumers on loans, and lowers equal monthly installment on home loans, car loans, and personal loans.
Borrowers are likely to benefit with lower EMIs as banks will follow suit and reduce their marginal cost of funds based lending rates.
Consequently, the reverse repo rate under the under the liquidity adjustment facility stands adjusted to 6 per cent and the marginal standing facility rate and the bank rate to 6.5 per cent.
Farm output was expected to decelerate in FY19. Continuing deflation in food and crude led to decline in headline inflation, said Das.
A shift in RBI policy stance to 'neutral' also provides flexibility to meet growth challenges, he said, adding that RBI is determined to focus on growth after achieving price stability.
The government's open market operation and liquidity infusion will depend on the evolving situation, Das said. Based on requirement, RBI will make sure there is no scarcity of liquidity.
Market experts said there could be more cuts in coming months.
The central bank forecasts consumer price inflation at 2.4 in January to March period, and 3.2 to 3.4 per cent from April to September.
While the decision to change the monetary policy stance was unanimous, Chetan Ghate and Viral Acharya voted to keep the policy rate unchanged.
The MPC reiterated its commitment to achieving the medium-term target for headline inflation of 4 per cent on a durable basis. The next meeting of the MPC is scheduled from April 2 to 4.
The RBI also raised the limit of collateral-free agricultural loans to Rs 1.6 lakh from the current Rs 1 lakh in a bid to help small and marginal farmers in the formal credit system.
The Central bank also decided to set up an internal working group (IWG) to review agricultural credit and arrive at a workable policy solution, according to its Statement on Developmental and Regulatory Policies.
In the interim Budget for 2019-20, the Central government pledged to support poor farmers and reduced tax burden for the middle class in a bid to boost consumption and growth before the general elections due in April.
* Repo rates reduced by 25 basis points to 6.25 per cent
* Deputy Governor Viral Acharya and MPC member Chetan Ghate voted for status quo, but RBI Governor Shaktikanta Das along with three others voted for a rate cut
* MPC aims to maintain inflation at 4 per cent
* RBI also raised the limit of collateral-free agricultural loans to Rs 1.6 lakh from Rs 1 lakh.