RBI Cuts Overnight Lending Rate to 6%

The move comes as India’s economic growth is forecast to slow down and amid one of the biggest tariff wars in the modern world’s recorded history.

This is the second rate cut by the central banker this year, after a hiatus of almost four years. It started reducing rates with a quarter-point reduction in February, its first cut since May 2020.

Though headline inflation, measured by the consumer price index (CPI), fell to a seven-month low of 3.61 per cent in February — below the RBI’s medium-term target of 4 per cent — trade uncertainties are expected to impact capital and investment flows. 

The uncertainties on the global trade front are also impacting exchange rates and currency values. To prop up growth RBI, has already injected liquidity through open market operations (OMO). In March this year, the RBI added Rs 1 lakh crore to the system through bond purchases.

Despite risks and challenges posed by the Covid pandemic and the Russia-Ukraine war, leading to supply chain disruptions and price shocks, RBI's monetary policy measures have so far managed to strike an overall balance between growth and inflation.

The RBI’s rate cut is expected to lower bank interest rates and ease lending norms, something which the industry has been crying out for. Top Finance Ministry officials said that the central banker’s rate cut was “helpful”, especially “as we are facing investment uncertainty in the face of this ongoing trade war.”

Officials indicated more measures were being readied to prop up investment and exports in the face of what many fear could be a global meltdown combined with a tariff war.

For a more detailed report, please see: https://thesecretariat.in/article/rbi-having-cut-repo-rate-banks-should-pass-the-benefit-to-industry