RBI Expected to Cut Repo Rate by 0.25% in June MPC Meeting

There is good news for the common people. The Reserve Bank of India (RBI) is set to hold an important meeting of its Monetary Policy Committee (MPC) from June 4 to June 6. Experts believe that the RBI may reduce the interest rate, also known as the repo rate, by 0.25% this time. If this happens, borrowing money will become cheaper for everyone.

In the two previous meetings this year, the RBI had already cut the repo rate by a total of 0.50%. Because of these cuts, the current repo rate is now 6%. The Monetary Policy Committee has six members—three from RBI and three appointed by the central government—who decide on such important matters.

RBI Current Policy Rates

Sunny Agarwal, Deputy Vice President of SBI Securities, says all signs are pointing towards another rate cut. The reasons include:

• Normal Monsoon: Good rainfall is expected this year, which helps the economy.
• Stable GDP Growth: The economy is growing steadily.
• Controlled Inflation: Prices of goods and services are not rising too fast. In fact, retail inflation is at its lowest level since July 2019.

During the last meeting, the RBI Governor hinted that if inflation continues to stay low, the repo rate might be cut again. This is expected to help sectors like real estate (housing) and automobiles.

What is the Repo Rate and Why Does It Matter?

The repo rate is the interest rate at which the RBI lends money to banks. When the repo rate goes down, banks can borrow money at a cheaper rate. Since banks get cheaper loans, they often lower the interest rates on loans they give to customers. This means you could pay less interest on your home loan, car loan, or any other loan.

How Does a Lower Repo Rate Affect You?

If the RBI reduces the repo rate:

• Banks are likely to reduce their loan interest rates.
• Your monthly loan EMI (equated monthly installment) may become less.
• Buying a house or a car becomes more affordable.
• More people may start investing in real estate or buying vehicles, boosting these sectors.

How Does RBI Use Interest Rates to Control Inflation?

The RBI uses the repo rate as a powerful tool to control inflation (the rise in prices). When inflation is very high, RBI raises the repo rate to make loans more expensive. This means banks also charge higher interest rates to customers, which slows down borrowing. Less borrowing means less money flowing in the economy, which helps reduce inflation.

On the other hand, when the economy is slow or facing problems, RBI lowers the repo rate. This makes loans cheaper for banks and customers, increasing the flow of money. More money in the economy helps businesses grow and supports overall economic recovery.