The Reserve Bank of India (RBI) on Thursday cut repo rate for the third consecutive time this year to 5.75 per cent from the current 6 per cent amid falling economic growth and uncertain global scenario.
The six-member monetary policy committee (MPC) headed by Governor Shaktikanta Das concluded its second meeting for the fiscal year 2019-20. On February 7 and April 4, the central bank had reduced the key lending rate by 25 basis points to infuse liquidity and push growth.
Repo rate is the rate at which the RBI lends money to commercial banks. A repo rate cut allows banks to reduce interest rates for consumers on loans, and lowers equal monthly instalments on home loans, car loans and personal loans.
India’s economy grew just 6.8 per cent in 2018-19, according to government data. In the fourth quarter (January to March), the growth dipped to 5.8 per cent, marking a five-year low.
Meanwhile, headline inflation stood at 2.9 per cent year-on-year in April, below the RBI’s target of 4 per cent.
Industry leaders say a substantial cut in the repo rate and bank lending rates are needed to boost manufacturing and domestic demand and bolster economic growth.
However, there is another concern among government officials that commercial banks with massive bad debts and weak deposit growth are not automatically passing through the RBI’s repo rate cuts to borrowers.