MUMBAI,MANOJIT SAHA:Reserve Bank of India (RBI) Governor Raghuram Rajan cited the April retail inflation “surprise”…
Naresh Kamath, Mumbai: The Reserve Bank of India (RBI) cut a key lending rate to a six-year low in a surprise
move on Tuesday, raising hopes of cheaper home loans and EMIs that could fire demand ahead of the festive season.
The decision to slash the repo rate — the rate at which banks borrow from the central bank — to 6.25% from 6.50% was the first by the newly-formed Monetary Policy Committee (MPC) headed by RBI governor Urjit Patel, who took over from Raghuram Rajan on September 6.
The RBI — which said all six members voted in favour of the cut — cited falling inflation as the reason for the move, surprising markets that were widely expecting a status quo.
“On the whole, this is a decision which will go down well with all sections of the economy,” Union finance secretary Ashok Lavasa said in Delhi.
Banks are expected to pass on the rate cut benefits to their customers by offering home and vehicle loans at cheaper rates. The EMIs — equated monthly installments — of existing customers are also likely to come down.
The central bank has reduced the key interest rate by 150 basis points since January 2015, but banks — saddled with bad loans totaling billions of dollars — have been reluctant to pass on the entire benefits to consumers.
“The committee’s decision… was on expected lines… Banks will continue to transmit rates based on evolving liquidity scenario,” said Arundhati Bhattacharya, chairperson of SBI, India’s largest bank.
Along with the unexpected rate cut, analysts feel, a massive payout for government employees will leave extra cash in people’s pocket at the beginning of the festive season.
Retail inflation eased to a fivemonth low of 5.05% in August, within the committee’s 2-6% objective, and is expected to ease further in the months ahead after a good monsoon has sent food prices sharply lower, the bank said.