In order to support growth and to keep a check on price hikes, the Reserve Bank of India (RBI,) on the 4th of April, said, home loans, bank loans and personal loans are going to get cheaper by 25 basis points (bps.)
Saying the policy is a neutral one, the Central Bank passed this order after a period of 18 months. Announcing the repo rate or repurchasing rate to stand at 6 %, the RBI has progressed on its efforts to promote growth in India.
Simply put, the repo rate is the rate at which the Central Bank lends money for a short period of time to commercial banks. On the other hand, reverse repo rate is defined as the rate at which the RBI borrows money from commercial banks. With the repo rate now cut by 25 bps, the RBI has increased the ease of taking loans.
While this move comes as a blessing in disguise for those taking new loans, the existing borrowers will have to wait for the reset clause. This means, if you applied for a loan in January, the cut will not have an effect.
Under the leadership of RBI Governor Shashikantala Das, this is the second cut passed so far in the year 2019. What is interesting to note is, India is the only Asian country to implement a move like this. “These decisions are in consonance with the objective of achieving the medium term target for consumer price index (CPI) inflation of 4 percent within a band of +/- 2 percent while supporting growth,” the RBI said in a statement.
Industries like banking, NBFC, infrastructure and real estate are the sectors which are going to be positively affected by this new cut. Furthermore, with the inflation rate being well below the RBI mandated 4 %, this announcement is definitely a blessing.
The decision of the RBI comes a mere ten days before the Lok Sabha elections, giving businesses a sense of relief during the stressful voting period.
Stay tuned for more updates.
