RBI Cuts Repo Rate by 25 bps to 6.25%; Changes Stance to Neutral
Moneylife Digital Team 07 February 2019
The Reserve Bank of India (RBI) on Thursday reduced its repo rate (short-term lending) by 25 basis points (bps) to 6.25% in its sixth monetary policy review for 2018-19.
 
Following the move, the reverse repo rate (short-term borrowing) stands at 6%. Subsequently, the marginal standing facility (MSF) and the Bank Rate have also come down to 6.50%.
 
In a statement, the central bank said, "The monetary policy committee (MPC) decided to reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 bps to 6.25% from 6.5% with immediate effect.
 
The MPC also decided to change the monetary policy stance from calibrated tightening to neutral. These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of 2%, while supporting growth."
 
Commenting on the repo rate cut, Anuj Puri, chairman of ANAROCK Property Consultants, feels that this would give substantial push to property buyer sentiments. "Home loan interest rates increased by as much as 5%-7% in the last one year because the RBI hiked its repo rates by 50 bps over the same period. In other words, home loans had become a more expensive proposition," he says.

However, Mr Puri, says, "...the real estate market does not depend only on marginally improved buyer sentiment - there are larger issues that hold the sector hostage right now. The liquidity issues post the non-banking finance companies (NBFCs) crisis are a bigger concern. NBFCs and housing finance companies (HFCs) have seriously curtailed disbursements to developers. Moreover, the repayment capabilities of many developers are also in question."
 
RBI says, the decision to change the monetary policy stance was unanimous. "As regards the reduction in the policy repo rate, Dr Ravindra H Dholakia, Dr Pami Dua, Dr Michael Debabrata Patra and Shaktikanta Das voted in favour of the decision. Dr Chetan Ghate and Dr Viral V. Acharya voted to keep the policy rate unchanged," it added.
 
Next meeting of the MPC is scheduled from 2nd to 4 April 2019.
 
Here are the latest policy rates following MPC review… 
 
Repo Rate: 6.25%
Reverse Repo Rate: 6%
Bank Rate: 6.50%
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