Mumbai: Home, auto and other loans are set to become cheaper after the Reserve Bank of India (RBI) on Friday cut interest rates for a record fifth straight time to almost a decade low as it moved aggressively to revive economic growth languishing at six-year lows.
With all six members of the Monetary Policy Committee (MPC) voting in favour of a rate cut and for retaining the accommodative stance, the benchmark repurchase rate was cut by 25 basis points to 5.15 per cent. The previous lowest repo rate of 5 per cent was recorded in March 2010.
Following the rate cut, the reverse repo rate was reduced to 4.9 per cent.
As against the cumulative policy repo rate reduction of 110 bps during February-August 2019, the weighted average lending rate (WALR) on fresh rupee loans of commercial banks declined by 29 bps. However, the WALR on outstanding rupee loans increased by 7 bps during the same period.
Central banks around the world are loosening monetary policy to offset a global slowdown, worsened by US-China trade tensions.
The rate cut by the RBI follows a series of fiscal steps taken by the government over the last six weeks to spur growth, including steepest ever cut in tax paid by companies, cost the exchequer Rs 1.45 lakh crore.
He said the impact of the 135 bps rate cut will "take time" to filter in.
"While the recent measures announced by the government are likely to help strengthen private consumption and spur private investment activity, the continuing slowdown warrants intensified efforts to restore the growth momentum," the RBI said.
On the mounting problems in the banking system that potentially could hurt lending, Das reiterated that the banking system "remains sound and stable" and there is no reason for "unnecessary panic".
The central bank raised its near-term inflation forecast slightly to 3.4 per cent for the second quarter of the fiscal started in April, while projecting it would stay below its medium-term target of 4 per cent.
On inflation, which is the key mandate of the RBI with the target of 4 per cent in the medium term, the MPC moved up the September quarter expectations "slightly upwards" to 3.6 per cent, but retained its projection for the second half of this fiscal at 3.5-3.7 per cent.
As the RBI has compelled banks to align all their retail loans to external benchmarks, and a majority of lenders have adopted the repo rate as the benchmark, the cut will likely bring cheer to borrowers.
On the regulation and supervision front, the RBI decided to increase the household limits for micro-lenders' borrowers, and also raise the cap to Rs 1.25 lakh per eligible borrower from the previous Rs 1 lakh.
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