The six-member monetary policy committee (MPC), headed by RBI Governor Shaktikanta Das, decided to reduce key repo rate by 35 basis points to 5.45 per cent from 5.75 per cent on Wednesday with immediate effect. With the fourth cut in a row, the repo rate stands lowest level in the past nine years; RBI trims GDP growth forecast for current fiscal to 6.9 per cent from 7 per cent predicted previously. In January 2014, the repo rate stood at 8 per cent. Since then, it has been revised to 5.40 per cent (including today's rate cut), a reduction of 2.6 per cent. After the rate cut, EMIs on home loans and other loans will come down significantly.
The reverse repo rate under the LAF (liquidity adjustment facility) has been reduced to 5.15 per cent from earlier 5.50 per cent, and the marginal standing facility (MSF) rate and the bank rate has been reduced to 6.0 per cent. The MPC also decided to maintain the 'accommodative' stance.
This will be more comforting for the market than just a rate cut, especially in light of the slowdown. Market experts were expecting a repo rate cut of 25 basis points in today's RBI policy. Repo rate is the interest rate at which the RBI lends money to banks. When the cost of borrowing goes down for banks, they are able to lower their respective marginal cost of funds based lending rate (MCLR), which directly impacts your loans.
All six members of the MPC unanimously voted to reduce the policy repo rate and to maintain the 'accommodative' stance of monetary policy. RBI Governor Shaktikanta Das said the apex bank would take all the necessary steps to ensure adequate liquidity in the system.
Four members (Ravindra H Dholakia, Michael Debabrata Patra, Bibhu Prasad Kanungo and Shaktikanta Das) voted to reduce the policy repo rate by 35 basis points, while two members (Chetan Ghate and Pami Dua) voted to reduce the policy repo rate by 25 basis points.