RBI CUTS RATE BY 0.25%; HOME, AUTO LOANS MAY BECOME CHEAPER

Home, auto and corporate loans are likely to cost less after RBI today cut interest rate by 0.25 per cent for the third time this year to spur investment and growth but hinted there may not be any more cuts in the near-term sending stock markets into a tizzy.

Yielding to demands of Finance Minister Arun Jaitley and India Inc, RBI Governor Raghuram Rajan “front loaded” the repo rate cut despite worries of below normal monsoon and its impact on prices.

The Governor asked banks to follow suit and pass on the rate cuts — 0.75 per cent since January — to individual and corporate borrowers.

Most bankers felt that with today’s rate cut RBI has provided space for lowering lending and deposit rates. Public sector Allahabad Bank became the first to reduce the lending rate by 0.3 per cent.

RBI cut the repo rate (short-term lending rate) from 7.5 per cent to 7.25, but left all other policy tools like cash reserve requirement unchanged at 4 per cent and Statutory Liquidity Ratio (SLR) at 21.5 per cent.

Rajan lowered projections of the economic growth as measured by GVA (gross value added) to 7.6 per cent from 7.8 per cent estimated in April due to global factors and likely impact of below normal monsoon.

At the same time, inflation still remains a worry for the central bank as it expects price rise to remain subdued till August before rising to 6 per cent by January 2016.

It asked the government to put in place a “contingency plan” to manage the impact of low food production on inflation, mainly because of expected lower than normal rains.

The other concern for the RBI is rising crude oil prices. Since the last policy in April, the crude oil prices have witnessed an increase of 9 per cent.

Soon after the policy announcement, the BSE Sensex plunged by over 400 points. The markets, however, later recovered slightly.

[“source-mumbaimirror.com”]