RBI slashes Repo rate by 25 Basis points

Today October 4, 2019, RBI decided to cut interest rate by 25 basis points. With this cut RBI reduced Repo rate for the fifth time in a row. While releasing the fifth Bi-Monthly Monetary Policy Rates for 2019-20  the MPC said that the rate is reduced on the basis of an assessment of the current and evolving macroeconomic situation.

The revised key policy rates are as under.

• The calibrated reduction in statutory liquidity ratio (SLR) will continue till it reaches18%.The first reduction of 25 basis points taken effect in the quarter commencing January 2019 at 19.25%

At present call money rate is hovering around 3.50% to 5.50%. The MPC also decided to maintain the accommodative stance of monetary policy. It is an indication that the central bank plans to shift towards the quantity of money (or liquidity) and expected to aggressively deploy open market operations (OMO) to release money into the market. MPC assessment directed that the inflation is projected to remain within target over a 12-month horizon and it provides headroom for policy action to close the negative output gap. The statement further said these  decisions  are  in  consonance  with  the  objective  of  achieving  the  medium-term  target  for  consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.

Outlook: In the third bi-monthly resolution of August 2019, CPI inflation was projected at 3.1per cent for Q2:2019-20, 3.5-3.7 per cent for H2:2019-20 and 3.6 per cent for Q1: 2020-21with risks evenly balanced. The actual inflation outcomes for Q2 so far (July-August) at 3.2per cent have been broadly in line with these projections.

Interest rate cut has direct impact on retail loans like home loan and auto loan, the consumers may get loan at a cheaper rate.  On the other hand, small depositors and pensioners would curse the interest rate cut as that would affect their regular and major source of income.