RBI cuts repo rate by 50 basis points

Reserve Bank of India (RBI) has cut down repo rate by 50 basis points or 0.5% today in its monetary policy meeting. RBI governor Sanjay Malhotra announced the decision. The broader expectation was that RBI would go for 25 basis point rate cut. One basis point is 0.01%. The repo rate after this cut stands at 5.5%.

Rate cut to give a boost to GDP growth

The 50 basis point rate cut comes as positive surprise for equity markets. Repo rate is the rate at which RBI lends to banks. It serves as the benchmark interest rate in the Indian economy. By going for this rate cut RBI has prioritized giving boost to economic growth over keeping inflation rate controlled. Reduction in interest rate make interest sensitive consumption and investment cheaper. This in turn is likely to give a boost to GDP growth.

Higher tariffs imposed by US President Donald Trump has greatly increased international trade risks. It is likely to have an adverse impact on India’s exports. Therefore, an interest rate cut looked necessary to offset some of this adverse impact on exports of the country.

Indian markets gained immediately after this announcement. From being in red, Nifty 50 turned green at 10:50 a.m. Indian time, 6^th June. Sensex which was down by over 200 points at the time of opening today recovered somewhat. It is down by 48 points at this time.

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Source: RBI