The Reserve Bank Of India’s decision to cut repo or interest rates by 0.25 per cent will immediately inject 1,80,000 crore into the market, which is a huge amount, considering the stringent and shoestring economic benediction that the Indian economy seems to be making a habit of working with. Along with the cut in the interest rates, the RBI has cut the Cash Reserve Ratio or CRR by 25 basis points both of which are likely to bring in a much needed relief to the economy, especially for those under pressure from banks for housing and car loans. The average middle class consumer is expected to be handed over some relief from the banks as far as their EMI’s are concerned and according to some estimates many EMI holders are expected to save up to IK on their monthly EMI, depending of course on loan borrowed and term of loan. This means an increased injection of Rs 12,000 of expendable income per individual which is likely to get injected into the economy through durables and other expenses instead of being locked as interest to the banks and in turn to the RBI. In an atmosphere of gloom thanks to inflation and relentless price rise of petrol, diesel and LPG, this will no doubt bring some cheer to the average middle class professional, and part of that cheer is most likely to get injected back into the economy or even into savings, either way benefitting the economy.
The RBI’s decision has come at a time when Indian Inc and the Indian economy is poised for greater challenges as it enters into the feverish few weeks of the last quarter. Some banks have already followed on RBI’s declaration by announcing interest cuts on the same day and most others are likely to follow suit. Much of the activity around the loans will be guided by the last minute effort to rope in more buyers of cars and homes to make a beeline before the closure of the financial year. Thanks to a slew of reforms and in most likelihood a budget that is unlikely to take the easy and populist road, Indian economy is entering a phase of rapid changes in the next few months and the RBI must stand both as guard and as a facilitator with a monetary policy that would best help the economy in achieving desired results and in neutralising, as much as possible to negative impacts of price rise. However, if fuel price increase it is going to lower fiscal deposit and in turn the government would unlock more value for customers through lower rates, it could only mean good for the economy. But there is a lot of thinking to do, and long way ahead to achieve the desires economic equilibrium, if ever at all.