The Reserve Bank on February 7 cut the repo rate, at which it lends to the commercial banks, by 0.25 percentage point to bring down the key benchmark rate to 6.25%. This reduction means banks’ borrowing costs will come down, which will ultimately result in lower rates on loans, including home and other personal loans.
RBI Governor Sanjay Malhotra, in his maiden monetary policy review of the central bank, announced that after a detailed assessment of the evolving macroeconomic and financial developments and the economic outlook, the rate-setting panel of the central bank unanimously decided to cut the repo rate, paving the way for banks to replicate the rate cut for loan borrowers by a similar margin if not more.
The central bank has also lowered the standing deposit facility (SDF) rate to 6%, the marginal standing facility (MSF) rate and the bank rate to 6.5% from 6.75%. The MPC also decided unanimously to continue with the neutral stance and remain unambiguously focused on a durable alignment of inflation with the target while supporting growth, the governor said.
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The central bank started hiking the repo rate in the post-Covid era to absorb the excess liquidity in the economy and curb inflation. After seven consecutive hikes in the repo rate, the central bank applied brake in February 2023 and since then maintained the status quo at a 6.5% interest rate, which resulted in all banks and non-bank lenders taking their lending rates to multi-year highs. Now that the government has initiated measures to boost consumption through income tax relaxations and the RBI cutting rates, the middle class, especially will heave a sigh of relief.
Also read: Rs 25 lakh salary & Rs 50 lakh home loan can save you Rs 11,461 per month: BankBazaar
But it is still to be seen how banks respond to this RBI rate cut and how soon they give relief to home and personal loan borrowers.
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