India announces fifth interest rate cut, loans to be cheaper

Mumbai: Indian expats living in Oman will be able to apply for cheaper loans back home this festive season as the Reserve Bank of India (RBI) on Friday announced another repo rate cut. For the fifth consecutive time this calendar year, the repo rate has been cut by 25 bps and the reverse repo rate by 25 bps (1 per cent is 100 bps).

For new borrowers, this will mean lesser EMIs and better interest rates on new loans as banks are mandated to link all new floating rate loans to any of the four external benchmarks specified by the RBI in order to make the passing on of the RBI's rate cuts to the borrower faster. This rule is in place since October 1.

In a statement, the RBI said, "On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) at its meeting today (October 4, 2019) decided to reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 5.15 per cent from 5.40 per cent with immediate effect."

"Consequently, the reverse repo rate under the LAF stands reduced to 4.90 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 5.40 per cent. The MPC also decided to continue with an accommodative stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target."

The RBI statement explained the rationale behind the decision and added, "These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth."

Borrowers looking to take loans this festive season will get even more attractive rates. Further, under the new interest rate regime, RBI has mandated banks to reset rates every three months.