The Reserve Bank of India (RBI) on Wednesday reduced the benchmark lending rate by 35 basis points to 5.40 per cent amid concerns over slowdown in economy. The fourth consecutive rate cut is expected to lower equated monthly instalments (EMIs) for home and auto buyers, and borrowing cost for corporate. Earlier this week, banks had assured Finance Minister Nirmala Sitharaman of passing on the benefits of RBI's rate cut to borrowers.
The 35 basis points (bps) cut in repo is unusual, as the RBI has been changing the interest rate by 25 or 50 bps in the past. When asked why the RBI opted for a 35-basis point rate cut, RBI Governor Shaktikanta Das said it is not unprecedented, and added that a 25-basis point reduction was inadequate while 50 bps was excessive, so the MPC took a balanced call.
