In its Monetary Policy Review, the Reserve Bank of India (RBI) had reduced the benchmark Repo rate to aid the growth of the economy.
In Detail :-
- For the second time in a row, the RBI’s Monetary Policy Committee (MPC) has reduced the repo rate.
- It has reduced the rate by 25 basis points.
- It now stands at 6%.
- The RBI has cited concerns over the growth of the economy to reduce the repo rate.
Repo Rate :
- RBI lends money to commercial banks at this rate.
- When this rate is lowered, the cost of getting money by commercial banks will become cheap and ease liquidity pressures.
- During high inflation periods, the repo rate is increased so that excess liquidity is sucked out of the economy to ease inflationary pressures.
The Impact :
- With the RBI’s decision, interest rates for loans to home, vehicle, and retail will be lowered.
- This enables private investment in the economy and spur growth.
Monetary Policy Committee :
- The MPC of RBI consists of six members and it is the apex body to fix benchmark interest rates in the country.
- MPC meetings are held 4 times a year.
- Among the six members, three are officials nominated by the government and three are RBI officials.
- The Governor of the RBI is the ex-officio chairman of the committee.
- Decisions are taken with a majority vote and RBI Governor has a casting vote.
- The main aim of the MPC is to keep inflation in check.
- As per the Gazette notification of India extraordinary dated 5th August 2016, the inflation target for the MPC is 4% by March 31, 2021, with lower and upper tolerance levels of 2% and 6%.
Other Decision MPC :
- It has lowered the growth forecast for the current financial year to 7.2% from 7.4%.
- For the first half of the current financial year, the committee has lowered the inflation forecast to 2.9%-3% from 3.2%-3.4%.
- It also stated that the domestic GDP will slide due to sluggish rural and urban demand.
- The reduction of repo rate comes at the right time for the economy where lower GDP projections are causing worry.
- Hope the private players will utilize lower interest rates and invest in productive activities that will boost the economy and generate employment.
- India cannot afford to slow down at this crucial juncture.