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RBI cuts rate by 25 bps; will EMIs now decline?

RBI cuts rate by 25 bps;  will EMIs now decline?
The RBI’s decision to cut its policy or repo rate to 7.5 per cent — after another cut from 8 per cent to 7.75 per cent on January 15 — is also expected to lower the cost of capital for the companies and improve the investment climate. The move, prompted by inflation remaining low, comes within days of Indian Finance Minister Arun Jaitley announcing in the Union Budget that the government was focused on fiscal consolidation.

RBI Governor Raghuram Rajan said the rate cut was prompted by softening inflation and fiscal deficit reduction roadmap unveiled by Jaitley in his Budget on Saturday. “Softer readings on inflation are expected to come in through the first half of 2015-16 before firming up to below 6 per cent in the second half. The fiscal consolidation programme, while delayed, may compensate in quality, especially if state governments are cooperative,” he said.

The early morning rate cut announcement send the benchmark BSE Sensex surging to the historic 30,000-mark in opening trade. A number of bankers and economists said that RBI may further cut the rates by 50-75 basis points during 2015, including a cut during the RBI’s scheduled policy review meeting next month on April 7.

The last two cuts — including the one announced on Wednesday and the previous one on January 15 — have been outside the regular policy reviews.

Welcoming RBI’s decision, Indian Minister of State for Finance Jayant Sinha said it should bring down the loan EMIs significantly and there is room for further easing of rates.

SBI chairperson Arundhati Bhattacharya said the bank will take an “appropriate call” on its lending rates soon.
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