RBI cuts rate to 9-year low, Attempts to aid growth
Sensex crashed more than 500 points due to unexpected rate cut
New Delhi: The Reserve Bank of India (RBI), expectedly, cutting the policy rate by 0.25 percentage points to 5.75% on Thursday, its third consecutive rate cut this year, in an attempt to reverse the slowdown in economic growth and boost consumer spending.
The policy rate is now the lowest it has been since July 2010; a year when the RBI effected a staggering six interest rate increases to combat stubborn inflation. Home, auto and other loans may cost less as the interests have fallen now.
The central bank’s Monetary Policy Committee (MPC), led by Governor Shaktikanta Das, took a unanimous decision to lower the repo rate or the rate at which the RBI lends to commercial banks, by 25 basis points or 0.25 per cent to 5.75 per cent. The reverse repo, or the rate at which the central bank borrows from the commercial banks, was also lowered to 5.5 per cent.
A lesser-than-expected lending rate cut along with no announcements on new measures to boost liquidity for the non-banking financial companies (NBFCs) sector disappointed the investors and pulled Sensex down by more than 500 points.