RBI cuts key lending rate after 10 months, banks may lower EMIs

MUMBAI: The Reserve Bank of India cut its key lending rate to a six-and-half-year low on Wednesday, giving banks the elbow room to reduce EMIs on home and car loans and lend more money to businesses.

The cut in the repo rate — the rate at which the RBI lends to banks—by-a-quarter-percentage point was expected after retail inflation, led by softer food prices, fell to a more than fiveyear low in June. The rate now stands at 6%.

The move will likely ease some of the pressure from the government and markets for action to lift the economy, which had annual growth in January-March of 6.1% — fast by global standards but India’s low- est number in more than two years.

“There is scope for banks to cut rates further, especially for those sectors which have not benefit ted in the past cuts,” said RBI governor Urjit Patel.

Four of the RBI’s six-member Monetary Policy Committee (MPC) voted for a 25 basis points reduction.

Ravindra Dholakia, professor at IIM Ahmedabad, wanted a 50 basis points cut, while Michael Patra, an executive director at RBI, wanted to hold rates.

The rate cut is the first since October that underlined the RB I’ s confidence in the economy, which has seen a surge in foreign investments into debt and shares this year.

Little adverse impact from demo net is at io nor poor rains also helped shape the decision.