RBI key rate cut to make Home and car loans cheap

Mumbai: Home and car loans as well as personal loans will soon become cheaper with the quarter per cent (25 basis points) cut in the repo rate (rate at which banks borrow from RBI) and several other measures to increase liquidity in the banking system that were announ-ced by RBI governor Rag-huram Rajan in his credit policy statement Tuesday.

This cut has brought the short-term lending rate down to 6.5 per cent, the lowest in five years. Dr Rajan said: “You will see a significant more transmission of cuts in the next few months.” The policy objective was to hike liquidity in the banking system to enable banks to transmit the 125 bps (1.25 per cent) cuts made so far, he said.

Stressing the significance of the 25 bps cut, Dr Rajan said it should be looked at in conjunction with the new minimum cost of funds loan pricing (MCLP) method announced last week, which has already led to lending rates coming down by up to half a per cent, or 50 bps.

In addition, he announced several other liquidity-boosting steps like  injecting an average of daily liquidity of over Rs 1.93 lakh crores between January and March 2016, from Rs 1.34 lakh crores earlier; Rs 51,400 crores was pumped in through open market operations and Rs 37,500 crores through buyback operations in February and March.