The Reserve Bank of India has announced that the key repo lending rate will get a reduction of 40 basis points to 4%. The RBI has dropped down the repo rate by bps in order to fuel growth. The reduction in the repo rate has made the banks lower their lending rates and deposit rate.
The monetary policy committee of RBI took the decision with a majority of 5-1 for a 40 bps repo rate cut. With the 40 bps rate cute, the reverse repo gets automatically adjusted to 3.35% from 3.75%.
"The inflation outlook is uncertain at this point. We must have faith in India's resilience and come out of all odds," said the RBI chief. Furthermore, the RBI Chief is quite optimistic about the combined effect of government's fiscal measure and RBI's steps in boosting the growth during the second half of this year.
Recently, the government has announced a ₹20 lakh crore special economic package under the Atmanirbhar Bharat Abhiyaan in order to fight back the majorly dropping graph of the economy during COVID-19 crisis. These funds also include ₹8 lakh crore of liquidity measures announced by the Reserve Bank since March.
Talking about the borrowers, the reduction in the RBI repo rate clearly is a cheerful news amid the gloomy times. Borrowers whose loans are linked to external benchmarks like repo rate can take full advantages of the new repo rate while the Fixed Deposit (FD) investors might react to the repo reduction as a pinch to their pockets. That’s because with reduced repo rate comes reduced interest rates on the principle amount of the FD.
