Mumbai, June 6
RBI Governor Sanjay Malhotra on Friday announced a jumbo 50 basis points cut in the repo rate from 6 per cent to 5.5 per cent to spur growth in the economy, as inflation has come down below the lower RBI band of 4 per cent.
A lower policy rate leads to a decline in interest rate on bank loans which makes borrowing easier for consumers as well as businesses resulting in higher consumption and investments in the economy leading to higher growth.
However, the effectiveness of this rate cut will largely hinge on how quickly and efficiently commercial banks pass on the benefits to borrowers.
The RBI Governor said the repo rate has now been reduced 100 basis points in quick succession since February this year and hence, the monetary policy stance has been changed from accommodative to neutral.
This will enable the RBI to keep a close watch on the overall growth-inflation dynamics.
The RBI Governor informed the inflation rate has now declined to 3.2 per cent amid a broad-based moderation of prices, and there is a durable alignment of the inflation with the RBI’s band.
Accordingly, the RBI has also reduced its projection for the inflation rate from 4 per cent to 3.7 per cent.