Monetary Policy tweaks by RBI

The Reserve Bank of India (RBI) reduced the interest rate by 35 basis point (0.35%). This is the fourth successive reduction in the repo rate.
What is the repo rate?
- The repo rate is the rate at which the RBI lends to the banks of the country.
- Repo rate is one of the sources of the lending amount available to the banks of the nation.
- This money is then used by the banks to finance their day to day lending.
- ?A higher repo rate would make lending credit dearer to the banks which would increase the costs of loans and EMIs.
- A lower repo rate would make borrowing cheaper as credit becomes cheaper for the banks to obtain.
What has happened?
- The repo rate has been reduced by the government by a total of 110 basis points this year (a total of 1.1%).?
- The reductions have been done in an attempt to boost the economy which is currently growing at its slowest pace in over 5 years.
How does the RBI decide the Repo rate?
- The repo rate (RR) is decided by the Monetary Policy Committee (MPC).
- The MPC comprises of 6 members (3 officials of the Reserve Bank of India and 3 external members nominated by the Government of India).
- The ex officio chairperson of the committee is the Governor of the RBI.
- All decisions are taken by a majority with the Governor having the casting vote in case of a tie.
Other trends
RBI had reduced the growth projections for the Indian economy to just 6.9% in the current FY lower than its 7% forecast given in June.
The slow is growth is mainly due to the slowdown in demand and in investments.
Originally written on
August 7, 2019
and last modified on
August 7, 2019.
Tags: Inflation, MPC, RBI, Repo Rate