The bank introduced a 10-basis-point cut in MCLR for all types of loans on June 7, following the Reserve Bank of India's (RBI) decision to cut the repo rate by half a percentage point. Central banks make rate cuts as part of a larger plan to help the economy speed up and provide more credit to financial institutions.
According to the updates, the rate of both overnight and one-month MCLR is now set at 8.90%. They voted to increase the three-month rate from 8.75% to 8.95%. Even so, both the six-month and one-year rates went down to 9.05%. Immediately, HDFC has dropped the rates for two-year and three-year MCLR from 9.20% to 9.10%. The bank kept its customers updated on the website about the changes due to a monetary policy change.
The RBI's committee, led by Sanjay Malhotra, cut the repo rate to 5.5%. Most members of the committee agreed on a more accommodative monetary policy, and the decision passed by a vote of 5 to 1. The move took place while indications show that domestic demand and investment are slowing down.
Besides changing the repo rate, the RBI also reduced the CRR by 100 basis points to a new level of 3%. This reduction in taxes is estimated to introduce Rs 2.5 lakh crore into the banking system, allowing banks to make more loans and invest more capital. According to the central bank, this decision aims to enable banks to issue more credit while maintaining sufficient capital.
Cutting down the lending rate by HDFC and others may enable borrowers to get affordable loans. There may be an increase in housing, auto, and small business loan applications as interest rates decrease in the next few months. At the same time, this move helps meet the RBI's purpose of recharging household spending and backing sectors that are being squeezed by costly supplies and external factors.
This year, the rate set by the South African Reserve Bank has gone down by 100 basis points. In February and April, successful attempts were made to reduce loan sizes. Analysts believe these actions will benefit the market and encourage more companies to invest.