The Reserve Bank of India (RBI) today cut repo rates (interest rates) by 35 basis points on expected lines to 5.40 per cent. This was the fourth time in 2019, that such a cut has taken place.
Repo rates are interest rates at which the RBI charges to banks, who lend money from it.
A majority of analysts and economists had expected a cut ranging from 25 basis points to 50 basis points, given slowing economic growth and subdued inflation.
Bond yields largely slightly lower following the RBI decision and bond prices too remained subdued. Most importantly the central bank maintaiend its accomodative policy stance, which means there is a scope of cuts in the future as well.
The Sensex was higher by 67 points, following the RBI decision, though most analysts were looking for future sense of direction from the country's central bank.
In 2019, the Reserve Bank of India has cut interest rates three times. The first time it slashed interest rates was in Feb, later in April, followed by one in June. This is the fourth time this year a cut has been affected. However, the real problem is the transmission by banks.
When the RBI reduces the borrowing costs for banks, the banks in turn should reduce costs for lenders. However, this transmission has not been happening. Banks should be coerced into reducing lending rates, so as to ensure that economic growth could be pushed higher. Bank deposit interest rates could also fall, as they have been in the last few quarters.