RBI cuts repo rate by 25 basis points; here's how it will benefit common man, SMEs

The RBI has announced a repo rate cut of 25 basis points in its first Monetary Policy Committee meeting under newly appointed Governor Shaktikanta Das held today.

The move comes in the wake of stable inflation levels observed by the MPC. (Image: AFP)

New Delhi: The Reserve Bank of India (RBI) has announced a repo rate cut of 25 basis points in its first Monetary Policy Committee meeting under newly appointed Governor Shaktikanta Das held today i.e. Thursday, 7th February 2019. The rate cut brings down the repo rate from 6.5% to 6.25% now, while the reverse repo rate has been fine-tuned to 6% and the marginal standing facility rate and bank rate follow up at 6.5%. The move comes in the wake of stable inflation levels observed by the MPC. Giving a hint of more repo rate cuts in the near future, the MPC has also taken a 180-degree turn on its stance and has changed it to ‘neutral’ from ‘calibrated tightening’ earlier. The repo rate cut will help commercial banks to get funds at a cheaper rate from the RBI, which in turn is going to prove beneficial for the common man. The move comes in less than a week after the BJP led central government announced a plethora of benefits for the middle class, farmers and other marginal sections of the society. The Modi government has time and again highlighted how the interest rates on home loans, car loans and education loans for the middle class have revised for better during its tenure since 2014. Today’s repo rate cut is further going to boost the market sentiment especially the realty stocks. However, RBI’s decision to cut the repo rate by 25 basis points has not been welcomed by all given the fiscal slippage the economy is marching towards. Also, provided the current oil prices and the fluctuating value of the Indian Rupee it will be prudent for the RBI to stay wary of any further repo rate cuts in the near future. “First, aggregate bank credit and overall financial flows to the commercial sector continue to be strong but are yet to be broad-based. Secondly, in spite of soft crude oil prices and the lagged impact of the recent depreciation of the Indian rupee on net exports, slowing global demand could pose headwinds. In particular, trade tensions and associated uncertainties appear to be moderating global growth,” stated Das apprising the present situation. The reduced repo rate will not only benefit the common man but corporates and MSMEs too as banks will pass on the benefit in commercial lending space as well. RBI is scheduled to meet the banks in the coming week to discuss how much leverage they are going to give in the interest rates to the end users apart from various other issues that need to be addressed by the Reserve Bank of India. The RBI had set the stage for the cascading benefit of reduced repo rates to the common man by banks earlier in December 2018, when it had presented a new system of fixing the floating loan charges. This new method was introduced to ensure that banks regularize the home loan rates as per future repo rates and government bond yields.