Days before Lok Sabha Elections 2019 kickoff, India’s apex bank: RBI, has announced a reduction in a rate cut for all banks.
This will have a direct impact on the middle class of India, as now, their loans will become cheaper, and EMIs will lower down.
However, this can only happen if the banks pass on the benefits of these lower rates to the customers.
The industry has reacted positively to this news.
RBI Announces Big Rate Cut
For the FY 2019, RBI conducted their first bi-monthly monetary policy meeting and decided that a rate cut is necessary at this point of time.
Repo rate has now been reduced by 25 basis points, which means a reduction of 0.25%. Hence, the new repo rate becomes 6% henceforth.
Justifying this rate cut, the RBI panel said that for the month of January, exports remained low, and imports of non-gold items also reduced in February.
The decision to reduce rate cut was taken by a panel of 6-officials, headed by RBI governor Shaktikanta Das
RBI Rate Cut: What Does This Mean?
Repo rate is the interest charged by RBI from commercial banks while lending them short term money, and reverse repo is the rate at which RBI borrows money from the commercial banks.
The reverse repo rate has also been slashed by 25 basis points, and now is 5.75%, down from 6%.
The most profound effect of this reduced repo rate means that banks can now lend money at a cheaper rate from RBI, which can be passed on to the customers at a cheaper interest rate.
In a statement, RBI said, “The decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of (+/-) 2 per cent, while supporting growth.”
In case banks implement the new repo rates on existing loans taken by the customers, then every EMI paid can become cheaper, and this will mean overall loans becomes cheaper.
This can include auto-loans, house-loans, personal loans and more.
Industry Is Elated, Positive Reactions Pour In
SMEs, financial experts, and the industry, in general, is quite happy with the decision, as lower interest rate means that more consumers will now open up for loans.
B Prasanna, Head – Global Markets group, ICICI Bank said, “The MPC decision taken today to cut the repo rate by 25 bps while keeping the stance neutral is a prudent and laudable one.”
Khushru Jijina, MD, Piramal Capital, and Housing Finance also applauded this decision, as he said, “Today’s rate cut and moderation in liquidity coverage ratio coupled with recent instances of liquidity injections indicate that RBI is cognizant of these risks. These measures would certainly help ease liquidity and improve access to cheaper credit by India Inc as well as retail consumers.”
Manish Lunia – Co-Founder at FlexiLoans said, “The rate cuts by the Central bank will act as a balm to the subdued economic activity components that have a lot of political and macroeconomic uncertainties to handle in the near to medium term.”
However, the stock market hasn’t reacted positively to this news, as both NSE and BSE witnessed a downfall.
We will keep you updated, as more details come in.