RBI CUTS REPO RATE BY 0.35% on 7 August 2019. CONCEPT OF REPO RATE AND REVERSE REPO RATE for UPSC CSE/IAS mains and prelims
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Username akashaky
on 07/08/2019

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RBI on 7 August 2019 cuts the Repo Rate from 5.75% to 5.40%. Let's understand the important points of this topic for UPSC CSE/IAS

RBI cuts Repo Rate by 35 bps(0.35%)

Highlights.
  • RBI on 7 August 2019 cuts the Repo Rate from 5.75% to 5.40%.
  • Note that this year, the Repo Rate has decreased in months of Feb, April, June by 0.25%, 0.25%, 0.25% respectively.
  • 4 members out of 6 members of the Monetary Policy Committee suggested lowering the Repo Rate by 0.35% while the other 2 suggested lowering the Repo Rate by 0.25%.
  • In this, year till August there is a total of 1.10% decrement of Repo Rate.

LET'S UNDERSTAND THE CONCEPT OF REPO RATE AND REVERSE REPO RATE

  • REPO RATE: The interest rate at which RBI gives a loan to the bank is called Repo Rate. It is also known as the benchmark interest.
  • When the Repo Rate decreases, borrowing from RBI becomes cheaper.
  • When the Repo Rate decreases, EMIs on home loans will decrease.
  • REVERSE REPO RATE: The interest rate at which RBI takes a loan from the bank is called Repo Rate.
  • Reverse Repo Rate is 0.25% lower than the Repo Rate.

Different Stances of RBI while declaring the Repo Rate

  • Calibrated tightening: There is a chance that RBI may increase the Repo Rate in the future.
  • Neutral Stance: There are possibilities that Repo Rate may be increased or decreased by RBI in the future.
  • Accommodative Stance: There is a chance that Repo Rate may decrease in the future.

Note: RBI has kept the present Repo Rate in Accommodative Stance which means that in the next Monetary Policy Meeting the Repo Rate may decrease further.

Hope it helps

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