As expected on 2 August, in the third bi-monthly monetary policy statement, the Reserve Bank of India (RBI) cut the repo rate by 25 basis points (bps) from 6.25% to 6%. Repo rate is the rate at which the RBI lends money to commercial banks. One basis point is one-hundredth of a percentage point. Consequently, the reverse repo rate also got adjusted to 5.75%. Meanwhile, the apex bank maintains a neutral policy stance expecting inflation rate to go up from here. Here is a look at what the policy announcement means for your money and what you should do.
Lending rate
The RBI seems to be unhappy with the current benchmark lending rate—marginal cost of funds-based lending rate (MCLR). During the policy announcement, RBI deputy governor Viral Acharya said, “The experience with the MCLR system introduced in April 2016 for improving monetary transmission has not been entirely satisfactory even though it has been an advance over the earlier base rate system.” The central bank is all set to relook MCLR. “We have constituted an internal study group across several clusters to study the various aspects of MCLR system and to explore where the linking of the bank lending rate could be made direct to market-determined benchmarks going forward. The group will submit the report by 24 September 2017,” said Acharya.
