Home and auto loans are set to become cheaper as the Reserve Bank of India (RBI) on Thursday slashed the repo rate by 25 basis points to 5.75 per cent from the previous 6 per cent.

The reverse repo rate and bank rate has been adjusted at 5.50 per cent and 6.0 per cent respectively.

The decision to reduce the repo rate was taken by the RBI’s Monetary Policy Committee (MPC) at its second monetary policy review of the current fiscal.

Currently, high interest rates and liquidity constraints have demoralised auto, home and capital goods buyers. Even the high-frequency indicators suggest moderation in activity in the service sector.

Accordingly, a lower repo, or short-term lending rate for commercial banks, will reduce the interest cost on automobile and home loans, thereby ushering in growth.

The RBI has decided to do away with charges levied on RTGS and NEFT transactions, and therefore, banks will be required to pass this benefit to their customers.

Amid reluctance by banks to pass on the benefits of lower lending rate, RBI Governor Shaktikanta Das on Thursday said the central bank would make sure that transmission of reduced repo rate would be faster and higher.

Das further said the RBI will not hesitate to take any measure which is required to maintain the financial stability of the system including short-term, medium-term and long term.

GDP projection has been adjusted to 7 per cent from 7.2 per cent in earlier projection.

This is the third reduction in repo rate during 2019. The RBI in April lowered its key lending rate by 25 basis points (bps) to 6 per cent. Before that, in February, the MPC had voted to lower the repo rate by 25 bps to 6.25 per cent.