Reserve Bank of India (RBI) governor Raghuram Rajan on Wednesday brought down its key policy rate by 25 basis points citing that the fiscal consolidation was better than what numbers show and that the combined fiscal deficit is much lower due to the government transferring more funds to the states.
RBI cut repo rate by 25 basis points from 7.75% to 7.5% with immediate effect. This is the second rate cut in the past two months.
The cash reserve ratio (CRR) was kept unchanged at 4%.
This will impact us in following ways:
Home Loans will become cheaper
A 25 basis points cut in home loan rate will bring down EMIs by Rs 842 on a Rs 50 lakh loan tenure of 20 years.
The ripple effect of this rate cut has already been seen in the form of improved market sentiment with Sensex hitting 30,000 for the first time and Nifty breaching 9,100 level in opening trade.
Value of bank’s bond portfolio will rise
Banks will gain as the value of their bond portfolio rises; companies will get stronger as interest costs fall.
Benefits for Corporates
Corporate loans, too, are set to get cheaper and hence the expected disbursement of those will increase.
Companies can raise equity
Improved market sentiment will enable companies to raise equity, enhance prospects for government divestment.
With more consumer spending and easy availability of loans -corporate as well as consumer- the economy growth is likely to pick up pace.