RBI cuts repo rate to 5.5%

Why in news?

• Reserve Bank of India (RBI) Governor Sanjay Malhotra has announced a cut in the repo rate by 50 basis points.
• After this cut, the repo rate has now come down from 6% to 5.5%.
• This decision has been taken with the aim of accelerating the country's economic growth.

Key reasons:

• Consumer Price Index (CPI) based inflation has come down below the lower band of 4%, creating scope for cutting policy rates.
• For the third time in a row, RBI has cut the repo rate, which reflects a growth-oriented policy stance.
• It has become necessary to stimulate domestic demand amid global economic uncertainties.

Possible effects of a cut in the repo rate:

• Loans will become cheaper - interest rates on home loans, vehicle loans etc. from banks will decrease.
• Increase in consumption and investment - People will be encouraged to spend and invest more.
• Promotion of economic growth - Possibility of improvement in the growth rate.
• Positive market reaction - enthusiasm in the stock market.