Bank Loans May Get Cheaper as RBI Cuts Repo Rate by 25 bps to 5.75%

File photo of RBI logo (Reuters).

Loading…

In its first meeting after the new Narendra Modi government took charge, the Reserve Bank of India (RBI) announced a 25 basis points reduction in the policy repo rate to 5.75 per cent, shifting its policy stance to ‘accommodative’ from ‘neutral’ to boost a slowing economy.

Thursday’s RBI meeting is third in a row since February that the central bank has cut interest rates. Amid slowing GDP and markets in stress ever since IL&FS defaulted, analysts were expecting at least a 25 basis points reduction in the policy repo rate. The demand for monetary easing was in the wake of relatively unstable inflation trend and big drop in crude oil prices.

The relationship between the RBI and the government remained contentious through much of the period during the government’s previous stint, which culminated in the resignation of then governor Urjit Patel. The Monetary Policy Committee (MPC), headed by Governor Shaktikanta Das, cut the policy repo rate twice in a row in 2019.

In the last MPC meet in April 2019, the RBI had reduced the policy repo rate by 25 basis points to six per cent, while maintaining a neutral stance, as retail inflation was contained within the 4 per cent target. In February, the MPC had voted by a 4:2 majority in favour of reducing the policy repo rate by 25 basis points.