The six-member RBI Monetary Policy Committee (MPC) decided to slash the current repo rate of 6 per cent to 5.75 per cent effective immediately. The committee which maintained a “neutral” stance post the rate cut in April, switched it to “accommodative”.
Under the Liquidity Adjustment Facility (LAF), the reverse repo rate was fixed at 5.5 per cent. The Marginal Standing Facility (MSF) rate and bank rate have both been adjusted to 6 per cent.
Repo rate, fixed by the apex bank, is essentially the interest rate at which it lends to other banks. When the repo rate is reduced, the banks can reduce their Marginal Cost of Funds based Lending Rate (MCLR). The MCLR, in turn, will affect the interest rates of loans. Thus, the decrease in repo rate will indirectly benefit retail customers.
The Governor of RBI, Shaktikanta Das, who is also the head of MPC, said that the RBI will take all steps required to make sure the liquidity in the system is maintained. All the members of the MPC unanimously voted for a reduction in repo rate. The 5.75 per cent repo rate is the lowest rate since July 2010.
The RBI also made it known that the forecast for GDP growth for FY 2019-20 is 7 per cent as against 7.2 per cent projected earlier. The inflation rate projection for the period between April and September is 3 – 3.1 per cent and for the second half of the year is 3.4 – 3.7 per cent.
Also, the fees levied on NEFT and RTGS transactions have been waived by RBI. It expects the banks to make sure customers are benefitted from this change.