RBI cuts down interest rate, repo rate to 6.25% - loans will become cheaper

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In view of the decline in inflation and slowdown in the economy, the Reserve Bank of India (RBI) has given a lot of relief and cut interest rates.

Following a review meeting led by Governor Shilpakanta Das, the RBI has cut the repo rate by 25 basis points to 6.25 per cent. Simultaneously, the central bank has changed its monetary stance from "hard" to "normal / neutral".

While 4 out of the six members included in the Monetary Policy Committee (MPC) supported the rate cuts, all the members approved the change in the policy stance.

RBI has estimated 7.4 percent GDP for the financial year 2019-20. RBI said that the inflation rate is expected to be between 3.2-3.4 per cent in the first half of the financial year 2019-20. While in the third quarter it can be 3.9 percent.

RBI has set a target of inflation for 4 percent (+ - two percent). With the fall in fuel prices, the country's retail inflation declined to 2.19 percent in December. It was 2.33 percent in November. In the last few months, the rate of inflation has been below the fixed target of R.B.E.

When deciding interest rates, RBI keeps retail inflation in mind. After deduction of interest rates, the bank can cut the interest, which will be benefited as a low payment of EMI.

While Presenting the interim budget for 2019-20, Finance Minister Piyush Goyal had said that the average inflation rate in the country has come down to 4.6 per cent, which is the lowest in any government tenure since 1991, after the economic reforms.

Goyal told the Lok Sabha that the average rate of inflation was 10.1 per cent between 2009 and 2014 and it has come down to 4.6 per cent in the National Democratic Alliance (NDA) Government. According to Goyal, the inflation rate was slightly higher than two percent in December 2018.

RBI has estimated the country's GDP to be 7.4 percent in the current financial year and with some 'risk', it is estimated to be 7.5 percent in the first half of the fiscal year 2019-20.

It is noteworthy that in the previous meeting, the RBI did not make any changes in interest rates, keeping its "strict" monetary stance. In the previous meeting, the bank retained the repo rate at 6.5 per cent. This was the second time, when the RBI did not make any changes in rates.

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