The Reserve Bank of India (RBI) has slashed the key interest rate, repo rate by 25 basis points or 0.25 per cent to 6 per cent and has decided to maintain the neutral policy stance.
Key points from the Financial Statement of the RBI:
- RBI projected GDP growth at 7.2 per cent for the financial year 2019-20.
- Reverse repo rate under the LAF stands adjusted to 5.75% and the marginal standing facility (MSF) rate and the Bank Rate to 6.25%
- RBI expects economic growth to be in the range of 6.8-7.1 per cent in the first half of the current financial year, and in the range of 7.3-7.4 per cent in the second half with "risks evenly balanced".
- Inflation is likely to remain benign in the short term. Assuming a normal monsoon in 2019, the RBI lowered its CPI inflation projection to 2.4 per cent in the fourth quarter of 2018-19.
- For the first half of the current financial year 2019-20, RBI expects inflation at 2.9-3.0 per cent, and 3.5-3.8 per cent in the second half.
- RBI will issue a fresh circular for Banks on how to tackle NPAs since the Supreme Court has struck down the February 2018 circular which gave lender banks six months to resolve their stressed assets or move under the Insolvency Code against private entities who have defaulted in loans worth over Rs 2000 crore.
Interesting to know:
- The rate cut will provide commercial banks more room to pass on the benefit of lower lending rates to loan borrowers.
- At the same time, it would also translate into a lower interest rate earned by depositors.
