RBI slashes Repo rate by 35 Basis points

RBI decided to cut interest rate by 35 basis points. With this cut RBI reduced Repo rate for the fourth time in a row.  The Monitory Policy Committee (MPC) of RBI released its third Bi-Monthly Monetary Policy Rates for 2019-20 today (August 7, 2019).

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%

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 percent within a band of +/- 2 percent while supporting growth.

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.