As the economy slows down, the Reserve Bank of India cuts off lending interest rate by 0.35 per cent, charging only 5.40 per cent.
The bank has recorded decelerating consumer spending and corporate investments, affecting the country’s GDP growth. According to the central bank, there is a decline of 1% in GDP growth for the months of April 2018 to March 2019. CNBC reports that the GDP this year is the slowest in nearly five years.
The new interest rate was set by the MPC members in their fourth straight meeting, garnering 35 basis points in favor of the 5.40%. It is also said that the decision was a split decision, saying that there are two members who want to reduce the rate for 0.25 per cent instead of the 0.35 per cent.
According to the MPC statement, “Even as past rate cuts are being gradually transmitted to the real economy, the benign inflation outlook provides headroom for policy action to close the negative output gap. Addressing growth concerns by boosting aggregate demand, especially private investment assumes the highest priority at this juncture while remaining consistent with the inflation mandate.”
5.40% is the rate charged by the reserve bank to commercial banks. They maintained a monetary policy wherein the increase for the interest rate isn’t applicable.
What the lower rates can do is to provide credits to the bank that also service customers who are in need of cash for starting a business or for financing loans.
Meanwhile, according to Housing sector representatives, only the commercial banks can benefit from this lower rate because borrowers from these banks still get the standard rate.
“As a result, lending rates continue to remain high. The slowdown in the economy coupled with high lending rate has accentuated the slump in housing demand,” said Omaxe CEO Mohit Goel.