Continuing to deliver good news for borrowers, the Reserve Bank of India (RBI) has announced another repo rate cut by 25 basis points (bps). This is the third time in a row that the central bank has cut key rates this calendar year. Borrowers can hope for more rate cuts in the future as monetary policy stance has been changed from neutral to accommodate.
However, this is bad news, especially for senior citizens dependant on income from fixed income instruments. This is because interest rates on fixed deposits depend on various other factors such as liquidity in the economy and interest rates of post office saving schemes apart from RBI’s repo rate.
Impact of the rate cut
Post the policy announcement, the repo rate stands at 5.75 percent down from 6.00 percent. Similarly, the reverse repo rate has also been reduced to 5.50 percent from 5.75 percent.
In the previous monetary policy reviews, held in February and April 2019, RBI reduced the key policy rates by 25 bps each time. In the calendar year, the central bank has reduced the rates by 75 bps in total. One basis point is equal to one-hundredth part of the percentage.
This is good news for borrowers as EMIs (equated monthly installments) are likely to go down assuming banks will pass on the benefit of the rate cut.
“It’s our expectation that as we go forward there will be higher transmission and then there will be faster transmission as well. This transmission will find its impact on individual consumer loans, consumer durable loans and two-wheeler loans as well,” Shaktikanta Das, RBI governor said.