Within hours of the Reserve Bank of India (RBI) on Friday announcing a cut in the key policy rate (repo rate) after six months, two large public sector banks – Bank of Baroda and Bank of India have reduced the interest rates of their repo rate linked loans by 25 basis points (0.25%) with immediate effect. This step indicates that now other banks will also soon move towards providing cheap loans to consumers.
New rates implemented by major banks
According to PTI news, Bank of India has reduced its Repo Linked Lending Rate i.e. RBLR from 8.35% to 8.10%. This new rate has become effective from Friday itself. Similarly, Bank of Baroda has announced to reduce its Baroda Repo Linked Lending Rate i.e. BRLLR from 8.15% to 7.90%. This reduction will be applicable from December 6. Earlier, in the same week, Indian Bank had also reduced its Marginal Cost of Funds Based Lending Rate (MCLR) by 5 basis points to 8.80%, which is effective from December 3.
RBI’s big decision: ‘Goldilocks’ support to the economy
On Friday, the RBI, in its monetary policy review, reduced the benchmark repo rate by 25 basis points to 5.25% for the first time in six months. In this, RBI also decided to inject additional liquidity of Rs 1 lakh crore into the banking system, with the aim of providing a “Goldilocks” (balanced and stable growth) economy. The six-member MPC headed by RBI Governor Sanjay Malhotra took the decision unanimously. The committee has maintained its neutral stance, leaving the possibility of further cuts in the future.
macroeconomic context of cuts
The RBI move comes at a time when India is facing global economic pressures such as the high tariff rate of 50% imposed by the US on Indian products. The repo rate cut will boost consumer demand, attract investment and will also provide strong support to the government’s efforts in GST reforms, relaxation in labor regulations and simplification of financial sector regulations.
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