RBI Cuts Repo Rates by 50 bps: First Time in Three Years

This is indeed surprising news for banks, home loan borrowers and the auto market. The Reserve Bank of India (RBI) has cut interest rates for the first time in three years by 0.5% to provide relief to borrowers and boost economic growth. RBI reduced the short-term lending (repo) rate to 8% from 8.5% and the CRR rate remained unchanged at 4.75%.

The Governor of RBI said that the reduction in the repo rate is based on an assessment of growth having slowed down, which in turn will contribute to moderation in core inflation. Moreover, the Finance Minister said that the RBI policy would boost investment and the government will take more steps in this direction. Earlier, in the month of January, RBI slashed CRR by 50 bps and further reduced it by 75 bps in March to 4.75% to ease tight liquidity in the banking industry.

State Bank of India, the country’s leading lender immediately announced that they would substantially cut the lending rates that would benefit auto, home and personal loan borrowers. With the reduction in rates, EMIs may come down. Thus, for home loan borrowers, the cut in repo rates means that, for a 10 lakh loan for 15 years, the EMI calculated at 10.5% will be Rs.10,757 (down from Rs.11,054, with a saving of Rs.297). This translates more savings of Rs.50,823 for over the full tenure of the loan.

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