To give a boost to the sagging economy, the Reserve Bank of India on Thursday lowered its benchmark lending rate to a nearly nine-year low of 5.75 per cent and changed its monetary policy stance to accommodative, leaving space for future rate cuts.
The third reduction in the benchmark lending rate or repo rate in the last five months is expected to bring down the EMIs on home and auto loans, and reduce the debt repayment burden on corporates.
In all, the central bank has reduced the benchmark lending rate by 0.75 percentage point since February.
With the 0.25 percentage point cut Thursday, the repo rate, at which the central bank lends to the system, comes down to 5.75 per cent, as was widely expected.
Earlier, the repo rate was at 5.75 per cent in July 2010.
Consequently, the reverse repo rate under the LAF stands adjusted to 5.50 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 6.0 per cent.
The six-member Monetary Policy Committee (MPC) also lowered its GDP growth forecast to 7 per cent for the current fiscal from 7.2 per cent earlier while marginally increasing its inflation projection to 3-3.1 per cent for the first half of 2019-20, which is within the comfort range of 2-6 per cent set by the government.
"The MPC notes that growth impulses have weakened significantly a sharp slowdown in investment activity along with a continuing moderation in private consumption growth is a matter of concern," the monetary policy resolution passed unanimously said.