RBI makes surprise cut in interest rate, home loans could get cheaper

RBI Policy MPC Cuts Benchmark Rate RBI Governor Emphasises Growth

The central bank has maintained status quo on interest rate in its last three bi-monthly monetary polices after hiking the repo rate twice this fiscal by 25 basis points each.

"While this can also result in reduced borrowing rates and incremental credit supply for NBFCs, however, this will depend on banks' willingness to do so".

RBI Governor Shaktikanta Das cut the interest rate by 0.25 percent to 6.25 percent, a move that will lead to reduction of lending rate by banks leading to lower EMI for housing, auto loan and corporate borrowers.

Developed economies too are altering stance, with the Reserve Bank of Australia governor this week shifting to neutral.

This was the first MPC meeting under Das, who took over from Urjit Patel.

The central bank pegged the growth in Gross Domestic Product at 7.4% in 2019-'20.

The central bank's surprise cut in interest rate could work well with the Narendra Modi government at the Centre which wants to boost growth in an election year. He also indicated that an interim dividend to the government was forthcoming.

The rate cut is in the right direction given that the inflation footprint has been benign for some time.

According to Indian Express reports, the reverse repo rate under the LAF now stands adjusted to 6.0 per cent and the marginal standing facility (MSF) rate and the Bank Rate to 6.5 per cent. It expects RBI to deliver another 25 bps rate cut in April.

The Reserve Bank of India (RBI) will probably change its monetary policy stance to "neutral" from "calibrated tightening" on Thursday and keep interest rates on hold. The customary post-Budget board meeting was earlier scheduled for February 9 but has now been deferred.

Addressing the media in Mumbai today, Mr Das said that inflation had fallen to 18-month low of 2.19 per cent in December and was expected to remain in the range of 3.2 - 3.4 per cent in April - September which is lower than previous RBI prediction of 3.8 - 4.2 per cent range.

"Several proposals in the union budget for 2019-20 are likely to boost aggregate demand by raising disposable incomes, but the full effect of some of the measures is likely to materialise over a period of time", it said.

Assuming a normal monsoon in 2019, headline inflation estimates are revised downwards to 2.8 per cent in Q4, FY19, 3.2-3.4 per cent in the first half of FY20 and 3.9 per cent during the third quarter of FY20, with risks broadly balanced around the central trajectory.

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