Home and auto loans are set to become cheaper as the Reserve Bank of India (RBI) on Thursday lowered its key lending rate for commercial banks by 25 basis points (bps) to 5.75 per cent.
Besides, the RBI changed the monetary policy stance from neutral to accommodative.
The decision to reduce the repo rate was taken by the RBI’s Monetary Policy Committee (MPC) at its second monetary policy review of the current fiscal.
As per the monetary policy statement, the main considerations behind the MPC’s decision were the decline in private final consumption expenditure (PFCE) and moderation in exports.
Currently, high-interest rates and liquidity constraints have demoralised auto, home and capital goods, buyers. Even the high-frequency indicators suggest moderation in activity in the service sector.
Accordingly, a lower repo, or short-term lending rate for commercial banks, will reduce the interest cost on an automobile and home loans, thereby ushering in growth.
This is the third reduction in repo rate during 2019. The RBI in April lowered its key lending rate by 25 basis points (bps) to 6 per cent. Before that, in February, the MPC had voted to lower the repo rate by 25 bps to 6.25 per cent.