Mumbai: The Reserve Bank today slashed benchmark lending rate by 0.25 per cent to 6 percent citing reduction in upside risk to inflation, a move that will lower EMIs for home, auto and personal loans. This is the first rate cut since October 2016 and the interest rate is now at 6-year low.
In line with record low retail inflation, the RBI Governor headed Monetary Policy Committee (MPC) cut policy repo rate by 25 basis points to 6 per cent and the reverse repo by similar proportion to 5.75 per cent.
The MPC has also decided to keep the policy stance neutral and to watch incoming data with a view to keeping headline inflation close to 4 percent. It stressed on urgent need to reinvigorate private investments, clear infrastructure bottlenecks and provide a major thrust to the Pradhan Mantri Awas Yojana.
RBI said it is working in close coordination with the government to resolve large stressed corporate borrowings and recapitalise public sector banks.
Meanwhile, in cutting rates, RBI stands out from other regional policymakers who are holding them steady in part to avoid volatility in foreign flows as the Federal Reserve weighs whether to raise U.S. rates for the third time this year. The European Central Bank is also seen as potentially easing up on its bond purchases.
As such, the rate cut signals how India’s standing with foreign investors has remained strong – and its confidence that it will remain so. Inflows into debt and shares have reached $30.4 billion this year, including on hopes for an improving economy, economic reforms from the government and a low current account deficit. The rupee on Wednesday surged as much as 63.59 to the dollar, its highest since July 2015, although bonds were range-bound while the broader NSE share index ended down 0.3 percent.
The RBI on Wednesday also cut the reverse repo rate by 25 bps to 5.75 percent.
