6 October 2016
RBI CUTS REPO RATE BY 25 BASIS POINTS
In the first monetary policy review under RBI Governor Mr. Urjit Patel, the interest rate was reduced by 25 basis points to six-year low of 6.25 per cent in a unanimous decision by the new rate-setting Monetary Policy Committee (MPC) panel. The cut, first in the last six months, came amidst a big clamour for easing rates. Consequently, the reverse repo rate has also come down by a similar percentage point to 5.75 per cent. The move will lead to reduction of lending rate by banks, leading to lower EMI for housing, car loans and corporate borrowers. Banks are yet to act upon this rate cut.
Contrary to general expectations, the RBI rate cut has come as a surprise for most of the economists. The latest RBI move shall boost the overall liquidity and positively influence the borrowing environment, as the move will lead to further rate cut by banks on lending as well as deposit rates. Home sales have experienced a downward trend and high number of unsold inventory has become the real estate industry norm since the last few years. Apart from escalating prices, market sentiments are playing a big role in lower residential sales. With festive season round the corner, lowered rates will surely lead to an improved sentiment among homebuyers encouraging residential sales.