The Reserve Bank of India (RBI) has lowered the repo rate by 25 basis points to 6.25%, marking its first rate cut in five years. The decision was taken by the six-member Monetary Policy Committee (MPC) after keeping the rate unchanged for the past two years. The last time the RBI reduced the repo rate was in May 2020.
Before this cut, the repo rate was 6.5%. It is at a period when India recently reduced individual income taxes in an attempt to boost consumption spending.
The announcement comes at a time when uncertainty prevails in the economy at a global level, with US President Donald Trump imposing tariffs on China, Canada, and Mexico. As tariffs on Canada and Mexico have been temporarily kept in abeyance for a month, fears of a global trade war have helped in strengthening the value of the US dollar. On Monday, India’s rupee reached an all-time low, crossing the 87-figure mark in terms of the dollar. However, the rupee recovered 16 paise at 87.43 in early trading on Friday.
A reduction in repo will make life easier for borrowers with a drop in lending rates for loans with external benchmark lending rates (EBLR). This will result in lowered equated monthly instalments (EMIs) for housing and commercial loans. Lenders can even lower rates for loans with a base of the marginal cost of fund-based lending rate (MCLR), in case full pass through of previous rate hikes hasn’t yet taken place.
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Source: IE
News Desk
