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RBI cuts repo rate by 25 basis points in first monetary policy after Modi 2.0 takes charge

The move is expected to lead to reduction of lending rate by banks leading to lower EMI for housing, car loan and corporate borrowers.

RBI cuts repo rate by 25 basis points in first monetary policy after Modi 2.0 takes charge

New Delhi: The six-member Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das on Thursday announced reduction of repo rates by 25 basis points to 5.75 percent in its second bi-monthly monetary policy of 2019-20 on Thursday.

The move is expected to lead to reduction of lending rate by banks leading to lower EMI for housing, car loan and corporate borrowers. This is RBI's first monetary policy after Modi 2.0 took charge last week.

The RBI has also announced that it is doing away with charges on fund transfers through RTGS and NEFT routes to boost digital transactions and asked banks to pass on the benefits to customers. RBI has said that it will soon issue instructions to bank in this matter.

The repo rate under the liquidity adjustment facility (LAF) has been reduced by 0.25 percent or 25 basis points to 5.75 percent from 6 percent with immediate effect. Consequently, the reverse repo rate under the LAF stands adjusted to 5.50 percent, the marginal standing facility (MSF) rate and the Bank Rate to 6.0 percent and the CRR rates remain at 4 percent, RBI said.

The RBI MPC's three-day meeting started on Monday. Maintaining an accomodative stance on the monetary policy, all the 6 members of the MPC unanimously voted in favour of the rate cut. Dr. Pami Dua, Dr. Ravindra H. Dholakia, Dr. Michael Debabrata Patra, Dr. Chetan Ghate and Dr. Viral V. Acharya and  Shaktikanta Das voted in favour of the decision to reduce the policy repo rate by 25 basis points.

The MPC has also lowered its GDP growth forecast to 7 percent for the current fiscal from 7.2 percent earlier while marginally increasing its inflation projection to 3-3.1 percent for the first half of 2019-20, which is within the comfort range of 2-6 percent set by the government.

The RBI under its new Governor Shaktikanta Das has cut its key rates by a cumulative 0.50 percent since he took charge. The central bank has slashed the short-term lending rate (repo rate) by 25 basis points (0.25 percentage points) each in its last two policy reviews.

The next meeting of the MPC is scheduled during August 5 to 7, 2019.