Good news: RBI’s Diwali gift, 0.25% reduction in repo rate

    Good news: RBI's Diwali gift, 0.25% reduction in repo rate

    In a series of efforts to accelerate the economy, the Reserve Bank of India (RBI) on Friday reduced its key policy rate for the fifth time in a row. The RBI has reduced the repo rate by 25 basis points to 5.15 per cent in this Monetary Policy Committee (MPC) review meeting, bringing the total cut in the repo rate to 135 basis points this year. Earlier this rate was 5.40 percent. For the first time in nine years, the repo rate has come down so much. The reverse repo rate has been reduced to 4.90 per cent and the bank rate to 5.40 per cent.

    Reduced GDP estimates

    The Reserve Bank of India has lowered its GDP estimate from 6.9 per cent to 6.1 per cent for FY 2019-20. At the same time, it has estimated GDP at 7.2 per cent for the financial year 2020-21.

    Another cut expected in December

    The six-member MPC met under the leadership of Governor Shaktikanta Das. The central bank decides on key policy rates keeping in mind the retail inflation. However, most experts are expecting another cut of 15 basis points in the December review.

    This is how you will benefit

    If the banks bring the benefit of the cut in the repo rate to you, then the common people will benefit greatly. This is because now there will be pressure on banks to cut interest rates. With this, people will get loans cheaply. Apart from this, the EMI of home, auto or other types of loans taken at floating rate will also be reduced. 

    That is why the RBI meeting was important

    This meeting of the RBI’s Monetary Policy Committee (MPC) was also important because it had ordered all banks to link their debt repo rates, such as benchmarks, from October 1, in order to pass on the benefit of the reduction in the repo rate to customers. Prior to the meeting, the Financial Stability and Development Council (FSDC) sub-committee headed by Das reviewed the current macro scenario.

    RBI governor gave a hint

    Explain that RBI Governor Shaktikanta Das had already indicated that there is still scope to make monetary policy flexible in view of softening inflation. Earlier, the government has taken a number of steps, including a steep reduction in corporate tax, withdrawal of the cess levied on FPIs, to accelerate economic growth to a six-year low of five per cent in the first quarter of the current financial year.

    Repo rate was reduced so much in August

    Earlier in the meeting held on August 7, the Reserve Bank of India had made a big announcement for the common people. For the fourth time in a row, the repo rate cut was announced in the review meeting of RBI’s Monetary Policy Committee. According to the verdict, the repo rate was reduced to 5.40 per cent. It was cut by 35 basis points. The central bank had raised the reverse repo rate to 5.15 per cent. 

    Estimates of retail inflation were also expressed

    At the same time, RBI had estimated GDP for the current financial year from seven per cent to 6.9 per cent. The Reserve Bank had estimated retail inflation to be 3.5 to 3.7 per cent for the second half of FY 2020.

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