Repo rate cut to benefit consumers, EMI to drop

RBI effects interest rate cut for third time this year as it sees strong economy growing on policy push

GN Bureau | June 2, 2015


#rbi   #reserve bank of india   #repo rate   #cash reserve ratio  


Showing confidence that the economy is in good shape to withstand any turbulence and sending out a strong signal to the banks to cut interest rates for consumers, the Reserve Bank of India (RBI) cut interest rates for a third time this year on Tuesday.  The RBI brought down the Repo Rate by 25 basis points to 7.25% but did not touch the Cash Reserve Ratio.

With the repo rate reduced, EMIs are likely to come down much to the relief of consumers.

The reverse repo rate stands adjusted to 6.25 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 8.25 per cent.

Previous cuts, in January and March, had also been by 25 basis points.The reduction showed policymakers recognised the need to put the economy on a sounder footing, regardless of data released on Friday that showed India outpaced China by growing 7.5 percent in the March quarter.

"With low domestic capacity utilization, still mixed indicators of recovery, and subdued investment and credit growth, there is a case for a cut in the policy rate today," the RBI said in a statement.

Still, the RBI did not take any new steps to free up cash-strapped commercial banks' liquidity, which bankers had said were needed for them to lower lending rates further and pass on the benefits of monetary easing to the broader economy. Instead, the central bank urged lenders to lower their lending rates.

The RBI also warned it would closely track inflationary trends, citing risks posed to food prices if monsoon rains are weaker than expected, or global crude prices recover, or the rupee weakens due to volatility in global markets.

"A more appropriate stance is to front-load a rate cut today and then wait for data that clarify uncertainty. Meanwhile banks should pass through the sequence of rate cuts into lending rates," the central bank said.

The rate reduction answered calls from both the government and businesses for the RBI to do more to shore up the economy.

While announcing the Second Bi-monthly Policy Statement for the year 2015-16, RBI Governor Raghuram Rajan said, "The rate cut is an attempt to boost investment. We have done what we think is 'appropriate' in view of current data."

In its credit policy review, the RBI expects Current Account Deficit (CAD) at 1.5% of Gross Domestic Product (GDP) in the financial year 2015-16. The RBI also expects inflation to start rising to 6% by January 2016.

There are considerable hopes that Prime Minister Narendra Modi's economic reforms and aggressive spending on infrastructure will solidify the gains in economic growth.

Policy Statement: Click here

Comments

 

Other News

3% of medicines are of poor quality: Survey

 More than three percent of medicines in India are ‘Not of Standard Quality’ (NSQ) and 0.0245 percent spurious, reveals a survey report on drugs quality by the ministry of health.  The survey carried out by National Institute of Biologicals (NIB), Noida found that out of the

BEL unveils new weapon system for MBT Arjun tank

 Bharat electronics limited (BEL) has launched a new weapon control system — Remote Controlled Weapon Station (RCWS) / Air Defence Weapon Station (ADWS) for 12.7 mm gun of MBT Arjun Mk II battle tank during recently concluded Aero India 2017 in Bengaluru. The new weapon control system

Sasikala camp in talks with OPS faction

 The Sasikala camp is in talks with the O Panneerselvam (OPS) faction and they are trying to win them over, says an AIADMK insider. Negotiation have started between the main AIADMK, which is with Sasikala, and the splinter group that is supporting former chief minister OPS. The party insider

Stories to read over the weekend

On October 1 last year, Mehtab Alam Ansari, 30, who worked as a tailor in Delhi, had arrived in his village, Chepa Khurd in Barkagaon tehsil of Harazibagh district, to celebrate Eid with his family. That morning, he was nearing Dadi Kalan, a neighbouring village, to meet an acquaintance when he hea

ONGC to invest of Rs 7,327 cr for five projects

  State run enterprise oil and natural gas corporation limited (ONGC) has decided to invest Rs 7,327 crore to develop five projects to produce oil and gas. The decision was taken in its 290th board meeting held on February 23. The projects include development of R-Series fields, incl

Shiv Sena may again ally with BJP

The civic election results could well have long term implications in Maharashtra’s politics, with the Bharatiya Janata Party (BJP) doing dramatically well and the Shiv Sena failing to get a simple majority.   The Shiv Sena won 84 seats, while the BJP bagged 82 seats. Th

Video

Digital Transformation Summit

Current Issue

Opinion

Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter

Twitter