For the fourth time this year, Reserve Bank of India’s (RBI) Monetary Policy Committee cut the repo rates by 35 basis points to 5.4% as on 7 August 2019 bringing the repo rate a 9 year low. You can read the full report here.

Repo rate is the rate at which the central bank lends money to the commercial banks, in case of any shortfall of funds to enhance liquidity and lending.

Consequently, the reverse repo rate stands revised at 5.15% and the Marginal Standing Facility (MSF) and Bank rate at 5.65%. RBI also revised FY20 GDP forecast cut to 6.9 percent from 7 percent. The decision to reduce the policy repo rate was unanimously taken by members of MPC in order to maintain the accommodative stance of the monetary policy.

According to RBI’s policy statement 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 +/- 2 per cent, while supporting growth.

In the previous three cuts, the MPC reduced the repo rates by 25 bps (0.25%) consecutively. This might bring cheer for borrowers but might hit the fixed income earners bad. On the other front, EMIs on home and other loans might come down. RBI Governor mentioned that necessary steps would be taken to ensure liquidity in our system.

The next meeting of the MPC is scheduled during October 1, 3 and 4, 2019.