The Reserve Bank of India (RBI) on Thursday cut repo rate for the second consecutive time this year to 6 per cent from the current 6.25 per cent, a move that will cheer industry leaders over relief from high borrowing costs a week before the first phase of general elections.
The six-member monetary policy committee (MPC) headed by Governor Shaktikanta Das concluded its first meeting for the fiscal year 2019-20. On February 7, the central bank had reduced the key lending rate by 25 basis points.
Repo rate is the rate at which the RBI lends money to commercial banks. A repo rate cut allows banks to reduce interest rates for consumers on loans, and lowers equal monthly instalments on home loans, car loans and personal loans.
Inflation has remained below RBI’s 4 per cent target and is expected to average at 4 per cent for 2018-19. But core inflation, which excludes food and fuel, is running closer to 5.5 per cent. Food inflation is expected to remain low due to excess production.
The GDP growth outlook for 2018-19 was cut to 7.1 per cent and is likely to be 7.2 per cent in current financial year (2019-20).
Industry leaders say a substantial cut in the repo rate and bank lending rates are needed to boost manufacturing and domestic demand and bolster economic growth.
However, there is another concern among government RBI officials that commercial banks with massive bad debts and weak deposit growth are not automatically passing through the RBI’s repo rate cuts to borrowers.