How will RBI's repo rate cut impact lenders, borrowers?

Banks are expected to face immediate pressure on margins, while borrowers stand to gain

- Abirami Sekar

The Reserve Bank of India's (RBI) Monetary Policy Committee on Friday cut the repo rate by 50 basis points (bps) to 5.50%. This is the third straight rate cut, leading to a cumulative reduction of 100 bps since the easing cycle began in February.

As part of the monetary policy decision to support growth, the committee also reduced the cash reserve ratio (CRR)—the amount of funds that banks need to park with RBI—by 100 bps.

However, the rate-setting panel changed the policy stance from 'accommodative' to 'neutral', citing limited headroom for monetary policy to support growth.

How will RBI's actions impact bank customers?

The Reserve Bank of India's 50 bps rate cut on Friday is likely to lead to a reduction in deposit interest rates, hurting bank customers who have enjoyed higher returns amidst fierce competition for deposits.

Fixed deposit interest rates are expected to drop as banks align them with lower asset pricing.

Since the second rate cut in April, several banks have already announced reduction in rates on some buckets of savings account deposits and fixed deposits in order to protect margins as loan yields fall.