Today, the RBI governor announced a 50 basis point cut in the repo rate; thereby giving a Diwali bonanza to the borrower and customers. With this, EMIs of the loans are expected to come down.
Making the fourth cut this year, RBI reduced the key rates from 7.25 bps to 6.75 bps. This move from the RBI has drawn praise from all quarters as the cut was only expected to be of 0.25 bps. RBI took most of the market force by surprise with this steep cut.
The market reacted sharply on the news and fluctuations were seen. With this, customers have got a sigh of relief as they will have to pay lower interest rates on home and car loans. Many economists feel that this will spur market activity. Immediately after RBI announcement, banks followed suit by slashing down their loan interest rates as they would receive a discount on their loans from the RBI. This step will improve market liquidity and money circulation. The final aim is a reduction in ‘Consumer’ and ‘Wholesale’ price inflation.
The RBI press release states:
A further monetary policy accommodation will be conditioned by the abating of recent inflationary pressures, the full monsoon outturn, possible Federal Reserve actions and greater transmission of its front-loaded past actions.
Raghu Ram Rajan said that the CPI inflation rates are expected to be around 6 % this fiscal year. He went on to say that RBI will work with the government to ensure a faster transmission and also hoped that banks will pass on the benefits to customers.
He stressed that with a slowing demand from the world market this move is essential to give a boost to the domestic market. He further said that enough liquidity has been provided to the market and now it’s government’s turn to make some good moves to take the economy forward.
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