RBI finally cuts the repo rate by 25 basis points which lead to 6 percent from 6.25 percent. Loans can now become more affordable, according to top economist.
Last, it was updated in October 2016 where it made loans cheaper than earlier, especially for home. Also, Governor Urjit Patel has hinted that there is scope for banks to reduce lending rates. Earlier, it was predicted by top economists that repo rate will be reduced to 25 bps and it happened as expected. Two of them also hinted that bank would cut the rate by 50 basis points.
Overall lower down of inflation has convinced RBI to make flexible monetary policy in over past three months. Central Bank, on Wednesday, stated that further updates on economic data are possible as it is playing very neutral role, despite a warning in rising in inflation.
Demonetisation leads to lower food prices as there became shortage of cash, predicted to be the main reason for fall in inflation. Although, RBI predicted it to 4% as per mid-term target for the past 8 months. Inflation eased to its slowest pace in more than five years in June.
Not only this, RBI also reduced reverse repo rate to 5.75% from 6%. Marginal Standing Facility (MSF) rate which banks borrow overnight funds from RBI against approved government securities and the bank rate were also adjusted to 6.25 per cent.
After Wednesday’s rate cut, the RBI is estimated to stand pat on policy in any event until 2019 in light of the fact that economic growth is set to accelerate. Indian stocks are trading at a record high, halfway in suspicion of that.