AMN /MUMBAI
The Reserve bank of India in its bi-monthly monetary policy review today reduced the repo rate under the liquidity adjustment facility (LAF) by 25 basis points.
Consequently, the reverse repo rate under the LAF stands adjusted to 5.50 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 6.0 per cent.
The six-member Monetary Policy Committee headed by RBI Governor Shaktikanta Das also decided to change the stance of monetary policy from neutral to accommodative.
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 plus or minus 2 per cent.
Amid slowing economic growth and rising global uncertainty, the RBI had decreased the short-term lending rate (repo rate) by 25 basis points each in its last two policy reviews.
Highlights from RBI’s monetary policy:
A reduction in policy rates will come with a reduction in market yields even if the transmission to the real economy via lower lending rates from the banking system may take some time.
-A reduction in interest rates will affect different types of debt funds differently depending upon their portfolio. Not all debt funds react similarly to a fall in market yields.
-The RBI rate cut is expected to bring down EMIs on home and auto loans, and reduce the debt repayment burden on corporates. In all, the central bank has reduced the benchmark lending rate by 0.75 percentage point since February this year.