Good news for borrowers as the Reserve Bank of India (RBI), in its bi-monthly monetary policy held on February 7 has cut the key policy rates by 25 basis points (bps). (One basis point is equal to one hundredth part of percentage.) Post the announcement, the repo rate stands at 6.25 per cent and reserve repo rate at 6.00 per cent. In addition to that, Monetary Policy Committee (MPC) has changed its stance to Neutral. Earlier, the MPC changed its stance to calibrated tightening in the meeting held in October 2018. The same stance was been maintained in MPC meet of December 2018.
Last time the central bank cut rates was in August of 2017. And during this financial year, RBI has kept the rates unchanged in the last two monetary policy announcements held in October and December 2018, and hiked the rates twice in June and August 2018. The rates were increased by 25 bps both times. With the apex bank lowering the repo rate, it is likely that banks will follow suit and reduce their marginal cost of funds based lending rates (MCLR). MCLR refers to the minimum rate that a bank will charge on the loan; it cannot lend below this rate.