RBI’s 4th Monetary Policy Review lowered the Repo Rate by 35 Basis Points to 5.4%

For the 4th straight time in a series, the Reserve Bank of India’s (RBI) six-member rate-setting panel yesterday cut its repo rate to 5.4%. This time repo rate cut by RBI a more than expected margin of 35 basis points (bps). The decision was made after the 3rd bi-monthly policy review by the Monetary Policy Committee (MPC), headed by RBI Governor Shaktikanta Das, for 2019-20. The repo rate is now at the lowest since April 2010.

RBI Governor Shaktikanta Das said that the Monetary Policy Committee (MPC) was of the view that the “standard 25 basis point (cut) might prove to be small because of the enlarged global and domestic macroeconomic progress. On the other hand, decreasing the rate by 50 basis points might be unreasonable or excessive, particularly after taking into account the actions already undertaken”.

This is the 2nd-biggest rate cut in recent times after RBI lessened the repo rate by 50bps twice, once in April 2012 and next in September 2015 respectively.

In a series of declaration after the repo rate cut, the Reserve Bank of India, revealing the monetary policy review, lowered its GDP growth prediction, presented 24*7 NEFT transfer and a bill payment system for repeat payments.

What is the repo rate?

Repo and Reverse repo are summarised for repurchase agreements between the RBI and the commercial banks in the economy. The repo rate is the interest rate that the RBI imposes a commercial bank when it borrows money from the RBI. For this reason, if the repo rate falls, all interest rates in the economy will fall. And that is the reason why common people should be interested in RBI’s monetary policy.

Here are the highlights of the RBI’s Monetary Policy Review:

• More Liquidity Resources Revealed to NBFCs
• The Reserve Bank of India will not allow any large and systemically important company from the suspicious shadow banking space to fall said RBI Governor Shaktikanta Das. We aim to assure that there is no destruction or breakdown of any large systemically important NBFCs.
• The judgments come at a time when a large number of non-banking investors and several housing finance companies are facing stiff liquidity issues which have been associated with their mismanagement of the asset-liability mixes. 
• RBI has classified as much as 50-odd large NBFCs, including some housing finance companies and these companies, are being controlled now by RBI. 
• GDP Growth Projection Lowered
• The Central Bank marginally decreased the GDP growth prediction for 2019-20 to 6.9% from 7% prediction in the June plan and emphasized the need for addressing growth matters by increasing total demand. The Central Bank has reduced the GDP growth prediction owing to demand and investment decline, which is making a moderate effect on the growth.
• 24*7 NEFT Transfer
• The RBI has decided to allow 24*7 fund transfers through NEFT from December this year to boost digital transactions. This move is supposed to transform the retail payments system of the country.
• Repetitive Bill Payment System to Be Covered Under Bharat Bill Payment System
• The RBI has chosen to cover all repeated bill payment system under the Bharat Bill Payment System (BBPS) and a complete guideline in this concern will be announced by the end of September this year.
• RBI’s Repo Rate Cut will Reduce EMI’S on Home Loan:
• It’s good news for borrowers. RBI’s decision to reduce the repo rate by 35 bps from 5.75% to 5.4% and change of mindset to “Neutral” will give a boost to the economy, lead to affordable credit for small businesses, homebuyers etc. and at the same time, it will boost employment opportunities.
• Usually, when RBI cuts Repo Rate, banks typically pass on the benefit to the customers. If the banks decide to pass on the rate cut, then the home, auto, and other loans are likely to get cheaper.
• Impact of the repo rate cut on Home Loan EMI:
• Now that RBI has reduced the repo rates, assuming banks will pass it on in a similar fashion, this is how your home loan EMI is likely to be impacted:
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Interest rate is taken from SBI Website for Rs.30 lakh loan for salaried class, male borrowers.