What is behind RBI’s move to cut repo rates?Between January 2019 and February 2020, RBI cut the repo rate, or the interest rate at which it lends to banks, by 135 basis points to 5.15%.
One basis point is one-hundredth of a percentage. The idea behind the move was to encourage banks to reduce interest rates on loans in the hope that at lower rates, people will borrow and spend more, and businesses will expand more by borrowing.
Hence, the economy will grow faster. As a result, banks did cut lending rates, but not as fast as RBI’s repo rate cut. The weighted average lending rate on fresh loans of banks fell by 53 basis points to 9.26%.What has happened since Feb this year?Since February, RBI has slashed repo rate by 115 basis points to 4%..