On expected lines, the Reserve Bank of India (RBI) has today slashed the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 5.15 per cent from 5.40 per cent with immediate effect. Consequently, the reverse repo rate under the LAF stands reduced to 4.90 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 5.40 per cent. Announcing its fourth bi-monthly monetary policy statement in Mumbai, RBI has revised the GDP outlook for 2019-20 to 6.1%, from 6.9% in previous Monetary Policy committee meet. For 2020-21, RBI has revised the GDP outlook to 7.2%. The Monetary Policy Committee (MPC) also decided to continue with an accommodative stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target.
The RBI statement said these decisions are in consonance with the objective of achieving the medium-term target for Consumer Price Index (CPI) inflation of 4 per cent within a band of /- 2 per cent, while supporting growth.
The repo rate, at which it lends to the system, has been brought down to help reduce borrowing costs for home and auto loans, which are now directly linked to this benchmark. Reverse repo rate is the rate at which the RBI borrows money from commercial banks within the country.
This is the fifth straight cut in rates by the Reserve Bank in its key rates in as much policy reviews in 2019, and takes the total quantum of reductions to 1.35 per cent.