Mumbai: The Reserve Bank on Wednesday cut key interest rate for the fourth consecutive time, as it reduces repo rate by 35 basis points to 5.40 per cent to boost the slowing economy. Consequently, the reverse repo rate stands revised to 5.15 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 5.65 per cent.
The six-member monetary policy committee (MPC) also maintained the accommodative stance on the monetary policy.
The RBI also revised real GDP growth for 2019-20 downwards to 6.9 per cent from 7 per cent in the June policy.
Consumer Price Index (CPI) inflation is projected at 3.1 per cent for the second quarter of FY20 and 3.5-3.7 per cent for the second half of FY20, with risks evenly balanced.
This is the fourth consecutive cut in repo rate after the February, April and June 2019 policy reviews and is expected to lower equated monthly instalments (EMIs) for home and auto buyers, and borrowing cost for corporate. Earlier this week, banks had assured Finance Minister Nirmala Sitharaman of passing on the benefits of RBI's rate cut to borrowers.
Noting that inflation is currently projected to remain within the target over a 12-month ahead horizon, the MPC said since the last (June) policy, domestic economic activity continues to be weak, with the global slowdown and escalating trade tensions posing downside risks.
The six-member monetary policy committee under the chairmanship of RBI Governor Shaktikanta Das began its meeting on August 5. It is the third bi-monthly policy review meeting for FY 2019-20.
However, experts are of the opine that for the realty sector the rate cut of 35 bps is insufficient to significantly improve buyer sentiment in the mid-income segment, which still has a staggering unsold inventory of 2.17 lakh units in the top seven cities. On the other hand, demand for affordable housing, which accounted for 2.40 lakh unsold units in these cities, may see improvement as this highly budget-sensitive segment already has the benefit of other incentives. Even minor downward revisions in interest rates can and do make a difference in affordable housing. If banks transmit this reduction in the prime lending rate to consumers, budget housing demand may improve.
What is Repo Rate?
Repo rate is the rate at which RBI lends to commercial banks for a short period of time. The back to back cuts in the key lending rate would enable banks to give personal, auto and home loans to customers at a reduced rate of interest. Consequently, the equated monthly instalments (EMI) would come down.
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