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The Reserve Bank of India (RBI) announced a cut in its key interest rates on Friday. RBI Governor Shaktikanta Das said that the repo rate has been cut by 40 basis points (bps) to 4 per cent and the reverse repo rate stands at 3.35 per cent.
Following the announcement by the central bank governor, the loan EMIs are set to get cheaper particularly the home loans that are linked to the marginal cost of funds-based lending rate (MCLR) of the lending banks.
Generally, whenever the central bank reduces its key interest rates, various public sector and private sector banks of the country follow suit and reduce their lending rates to customers. This has an immediate impact on those loans which are fluctuating and are linked to the MCLR.
The EMIs of home loans and some car loans that have a fluctuating interest rate get affected whenever the banks announce changes in their interest rates. Simultaneously the deposit rates in the banks also change whenever the interest rates are changed.
In his third press conference in two months, the RBI Governor said the biggest blow of Covid-19 has been domestic consumption. “Industrial production shrank by 17 per cent in March due to India’s lockdown, while manufacturing activity fell by 21 per cent. The output of core industries contracted by 6.5 per cent,” he said.
Saying that the GDP growth is estimated to remain in the negative, with some pick up in the second half, Das said the simultaneous fiscal, monetary and administration measures will create conditions for a gradual revival of activity in the second half of 2020-2021.
