RBI SURPRISES WITH 50 bps RATE CUT. LOANS TO BECOME CHEAPER

Cash reserve ratio by 100 basis points to 3 per cent, injecting Rs 2.5 lakh crore to already surplus liquidity in the banking system.

- 

Announcing the monetary policy on Friday from Mumbai, Reserve Bank of India (RBI) Governor Sanjay Malhotra announced that the monetary policy committee (MPC) has decided to reduce the policy repo rate under the Liquidity Adjustment Facility by 50 basis points to 5.5 per cent.

The central bank also reduced the cash reserve ratio for banks to make available more money to lend in a bid to boost the economy.

The Reserve Bank Governor said, "The reduction recommended by the MPC is for 50 basis points to 5.5 per cent. This is with an immediate effect." He also mentioned that the reason for repo cut is that the inflation softened, near-term and medium-term alignment is within RBI range, and food inflation remains softadjusted to 5.25 per cent, and the Marginal Standing Facility MSF Rate and the Bank Rate shall stand adjusted to 5.75 per cent.

Home, auto and other loans are likely to cost less after the cut in interest rates.

The RBI's six-member monetary policy committee, headed by Governor Sanjay Malhotra and consisting of three external members, voted five to one to lower the benchmark repurchase or repo rate by 50 basis points to 5.5 per cent.

It also cut the cash reserve ratio by 100 basis points to 3 per cent, adding Rs 2.5 lakh crore to already surplus liquidity in the banking system.

With the latest reduction, the RBI has now cut interest rates by a total of 100 basis points in 2025, starting with a quarter-point reduction in February the first cut since May 2020- and another similar-sized cut in April.