RBI(Reserve Bank of India) is India’s central bank, as it supervises all banks in India. Banks can borrow money from the RBI to lend to the people. Due to the slow down in India’s economy RBI has cut the rate of interest at which they loan the money to banks and therefore banks reduce the rate of interest at which it lends to the people. They cut the key policy rate by 25 basis points. 100 basis points are 1%. Therefore the rate was cut by 0.25%
This rate cut was much expected as the Indian economy has slowed down and grew at only 5.8% in the last quarter and unemployment rose to 6.1%. US, China and Europe are slowing down as well. Keeping the global conditions in mind, RBI has changed its stance from ‘neutral’ to ‘accommodative’. Rates are likely to come down further in the coming quarters as well. Lower interest rate spur economic activity and increase consumption. RBI has also lowered the expected growth rate for the year 2019-20 to 7% from 7.2%
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