Reserve Bank of India on Thursday has reduced the ‘repo rate’ by 0.25 percent. Now the repo rate stands at 6.25 %. The cut in repo rate may lead to lower EMIs for home and auto loan borrowers.
Auto and Home loans are basically priced at floating rate, that means whenever the repo rate is reduced by RBI, banks will slowly give lower rate to borrowers. The samething will reverse when the repo goes up.
It should be noted that, repo rate is the interest rate at which the RBI lends money to commercial banks.
Reserve Bank also changed its monetary policy stance from “neutral” from the “calibrated tightening”.
This is the first policy change under RBI Governor Shaktikanta Das, who took charge in December last year. The six member Monetary Policy Committee voted 4:2 in favour of the repo rate cut. Whereas the decision in changing stance to neutral is taken unanimously.
RBI cut its Consumer inflation forecast to 2.8 percent for the quarter ending March 31, 2019. The RBI also reduced the retail inflation forecast to 3.2- 3.4 percent for the first half of 2019- 2020, and 3.9 percent for the third quarter.
Economists accepted the surprise decision of the Reserve Bank. The new change will benefit the economy as it boosts the banking sector.
The Modi government is seriously working to lift the economy as they will face the Loksabha elections in May. During the announcement of interim budget on February 1st, the BJP government had aimed farmers, middle-class and unorganized sector workers.