RBI cuts repo rate by 25 basis points to 6.25%

RBI cuts repo rate by 25 basis points to 6.25%

The Reserve Bank lowered the policy rate by 25 bps to make the most of the space offered by the softening in prices, and will deliver more on the rate front if its lower inflation estimates are achieved, governor Shaktikanta Das said on Thursday.

Despite the cut the rupee edged up 0.1 percent against the dollar. Some of those issues worsened dramatically after the government suddenly banned the use of then existing high-denomination banknotes in 2016 and hastily introduced Goods and Services Tax (GST) in 2017.

Acharya also said the RBI does not act with a real rate of interest, which is the difference between the rate of inflation and the benchmark lending rate, in mind while setting its policies.

"The decision would supplement government's measures announced in the budget and will boost lending to farmers, housing and manufacturing sectors", he said.

The cut in borrowing costs in Asia's third-biggest economy comes as the economy stutters and other central banks, most notably the Federal Reserve, have sounded increasingly cautious about the global outlook.

But the faster-than-expected move isn't likely to help the economy much, they said.

Analysts say India needs to regularly record growth of at least eight percent to generate employment for the millions entering the workforce each year. "Investment activity is recovering but supported mainly by public spending on infrastructure". The repo rate cut will lead to a decrease in EMIs on Home Loans, Car Loans and Personal Loans as the banks would likely decrease the interest rates.

Why did the new RBI chief hit the neutral gear?

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In his first presser after taking over the charge at RBI, Das had made it clear that the RBI also can't ignore growth worries in the economy.

The BJP lost three key state elections to the opposition Congress late previous year and national polls have indicated that Modi faces a tough re-election battle against a resurgent opposition as Congress and regional parties form alliances.

However, economists were divided if a rate cut will be announced, citing core inflation of over 5 per cent as well as the fiscal slippage in the Union budget.

Economic growth fell to a worse-than-expected 7.1% in the July-September quarter from 8.2%, dragged down by slower consumer spending and farm growth, below analysts forecast for a 7.4% increase.

"Our loan requirement has been rising as fertiliser and diesel prices are going up".

"Central banks do move in small steps".

"Today's repo rate would largely benefit bankers rather than borrowers", he said.

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