The six- member RBI Monetary Policy Committee which was headed by the RBI Governor Shantikanta Das has decided to lower the Repo Rate by 25 basis points to 5.75 per cent from 6 per cent with immediate effect. The repo rate is a rate of interest on which the RBI lends money to the regular banks. The average marginal cost lending rate of banks has however, raised from 10.38 per cent to 10.42 per cent in April 2019. It is been said by the bankers that its not possible to bring down the cost of funds without reducing deposits rate. The RBI Governor Shantikanta Das said that- it has been decided to hold further consultation with stakeholders and workout an effective mechanism for transmission of rates. With the reduction of the repo rate it was also decided by the committee that RBI is to remove the charges on NEFT, RTGS Transaction, and the home loans will also become cheaper. By swapping Dollars with banks and buying back government bonds the RBI is easing liquidity.
The RBI Governor Shantikanta Das has also said that the apex bank has taken several measures to enable better management of interest rate risk by banks- for instance, by allowing non- residents to participate in the rupee interest rate swap market.