Markets

RBI cuts repo rate: Home loans won't be cheap

RBI cuts repo rate: Home loans won't be cheap

The six-member Monetary Policy Committee (MPC) headed by RBI governor Urjit Patel made a decision to lower the policy repo rate by 25 basis points to 6% on Wednesday.

Expecting further steps to curb the surplus liquidity into the market causing inflation Rakesh Yadav, Chairman, Antriksh India Group said, "The sector was hopeful for a rate cut today and after nearly 9 months, RBI has decreased the key rate by 25 basis points".

Monetary Policy Committee of Reserve Bank of India met for its 3rd bi-monthly policy review today.

The RBI today continued to fault banks for not passing on the entire benefit of its rate cuts, saying it was unsatisfied with the MCLR and considering a new market-linked benchmark to ensure a better transmission.

The bank's previous decision to cut rates came a month before Prime Minister Narendra Modi removed all large-denomination banknotes from circulation, in a shock move to tackle corruption and tax evasion.

The RBI sharply cut its inflation forecasts at its last meeting, in June, but it still believes consumer prices in October-March will rise 3.5-4.5 percent from a year earlier.

A rate-cut by RBI therefore implies that commercial banks will be borrowing money from the central bank at a lesser rate. The RBI has also cut reverse repo rate by 25 basis points to 5.75% from 6%.

The Reserve Bank of India (RBI) is reviewing the current MCLR or marginal cost of funds based lending rate lending rate system.

By contrast, the finance ministry prefers the RBI to cut rates more aggressively to kick-start investments and boost industrial growth.

RBI maintains a neutral policy stance targeting a 4 per cent consumer price index (CPI) inflation figure. The central bank, however, remains fixated on inflation as it believes that even now there are upside risks for inflation than downside risks for growth. "Banks can't show loan growth for several quarters now", he said.

The Monetary Policy Committee stressed on the need to reinvigorate private investments, clear infra bottlenecks and provide big thrust to Pradhan Mantri Awas Yojana.

The RBI said farm-loan waivers granted by state governments and planned increases in wages for public-sector employees could contribute to a rise in inflation.

Going forward, as base effects fade, the inflation momentum is to be hinged upon the impact of house rent allowance (HRA) under the Central Pay Commission (7th CPC), price revisions withheld ahead of the Goods and Services (GST) rollout as well as disentangling of structural and transitory factors shaping food inflation, the apex bank said.


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