RBI Slashes Lending Rate by 0.25 per cent: Here’s Who Said What

India’s central bank made a decision to cut its key interest rates by 25 basis points to the lowest since 2010, as slowing inflation provided room for easing, but the bank cautioned that price growth could accelerate from the current lows.

At the end of its two-day meeting, the Monetary Policy Committee chose to reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 6.25 per cent to 6.0 per cent with immediate effect, RBI stated in a release.

The six-member Monetary Policy Committee (MPC) led by governor Urjit Patel began a two-day meet on Tuesday to deliberate on the bank’s stance on key rates. The case for rate-cut is additionally strengthened by easing of food inflation to (minus) 2.12 per cent from 0.31 per cent. One of the key points highlighted by the RBI included speedier clearance for projects which has been a long standing demand of the industry.

Stating that it’s not satisfied with the Marginal Cost of Funds Based Lending Rate (MCLR) system, the Reserve Bank of India on Wednesday said it’s reviewing the MCLR system and exploring linking of the bank lending rates directly to market determined benchmarks to ensure a better transmission of interest rates.

The repo rate is what RBI charges commercial banks when it lends them money. Falling retail inflation, which fell to a historic low of 1.54 per cent in June, slowing economy that grew at a subdued 6.1 per cent last quarter, and weak private-sector investment are prompting a rate revision. The country’s largest lender cut interest rate on savings bank accounts on Monday to 3.5 per cent from 4 per cent on balance of Rs 1 crore and below.

The group will submit its report by September 24, 2017.

Ten big banks have the lowest MCLR (Marginal Cost-based Lending Rate, which is a floor below which banks can not lend) in the range of 8% to 8.4%. “This will give them enough room to cut lending rates”, he added.

The central bank’s tone on growth was cautious. SLR is that portion of assets that banks need to maintain in gold or government securities before lending to others.

“Domestic factors are likely to be given a higher weightage in swaying the decision, compared to global factors”, Rao wrote in a Wednesday note ahead of RBI’s decision.

On the flip side, it is expected that public sector banks will pass on this benefit to consumers without any time lag.