RBI slashes repo rate to 5.75%, bank loans to get cheaper

With the RBI cutting repo rate by 25 basis points, bank loans are set to get cheaper.

Reserve Bank of India (RBI) Governor Shaktikanta Das gestures as he speaks during a press conference at the RBI head office in Mumbai on June 6, 2019. - India's central bank cut interest rates on June 6 in a boost to newly re-elected Prime Minister Narendra Modi as he grapples with sluggish economic growth and decades-high unemployment. (Photo: AFP)

Mumbai: In the second bi-monthly monetary policy review of the current fiscal, the Reserve Bank of India (RBI) on Thursday slashed its key lending rate for commercial banks by 25 basis points (bps) to 5.75 per cent. The central bank has changed its policy stance to accommodative from neural. Repo rate is the key interest rate at which RBI lends short-term funds to commercial banks. With the RBI cutting repo rate by 25 basis points, home and auto loans are set to get cheaper. While marginally increasing its inflation projection to 3-3.1 per cent for the first half of the fiscal year 2019-20, which is within the comfort range of 2-6 per cent set by the government, RBI cut the GDP growth targets sharply to 7 per cent for FY20 on weak global scenario and dip in private consumption. "The MPC (monetary policy committee) notes that growth impulses have weakened significantly, a sharp slowdown in investment activity along with a continuing moderation in private consumption growth is a matter of concern," read the policy resolution. ALSO READ: RBI extends RTGS timings from June 1, transactions allowed till 6 pm from next month; Here's all you need to know Highlilights of RBI's monetary policy statement 

• Repo rate reduced by 25 bps to 5.75 pc for third time in a row
• Reverse repo rate now stands at 5.50 pc, marginal standing facility (MSF) rate 6 pc
• RBI changes policy stance to accommodative from neutral
• Cuts GDP growth forecast to 7pc from 7.2 pc for FY20
• Raises retail inflation forecast for Apr-Sept to 3-3.1 pc and 3.4-3.7 pc in   Oct-Mar
• Projects upward bias in food inflation in near term due to rising prices of food items
• Forecast risks to inflation trajectory from monsoon uncertainties, unseasonal spike in vegetable prices, crude oil prices, financial market volatility and fiscal scenario
• To issue draft guidelines for 'on tap' licensing of small finance banks by Aug
• Flags sharp slowdown in investments, moderation in private consumption growth as concern
• All six MPC members voted in favour of 0.25 pc policy rate cut
• Average daily surplus liquidity in the system at Rs 66,000 crore in early June
• Foreign Exchange Reserves stood at USD 421.9 billion on May 31, 2019
• Next monetary policy statement on August 7.
• It also removed charges on National Electronic Funds Transfer (NEFT) and Real Time Gross Settlement System (RTGS) transactions asking banks to pass on benefit to customers.
• The RTGS system is primarily meant for large value transactions. The minimum amount to be remitted through RTGS is Rs 2 lakh with no upper or maximum ceiling.
• This will make money transfer through RTGS and NEFT cheaper n the instructions to the banks will be issued in a week.
• The RBI has set up a committee to review the charges for usage of ATMs.

(With additional information from Agencies)