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RBI cuts repo rate by 25 basis points
The Reserve Bank of India (RBI) has cut the repo rate by 25 basis points. The impact of this decision will be on the Indian economy, banking sector, home loans and the general public at large. Let’s understand in detail what this change is and what its possible effects will be.
1) What is the repo rate?
Repo rate is the rate at which the RBI lends short-term funds to commercial banks. When banks need liquidity, they borrow from the RBI and pledge government securities in return. It is an important tool of monetary policy, which is used to control inflation and keep the economy stable.
2) Repo rate cut: Latest update
The repo rate has been reduced from 6.50 per cent to 6.25 per cent. Earlier, the RBI had kept the repo rate unchanged for a long time. The purpose of this reduction is to accelerate economic growth and maintain liquidity in the market.
Historical Perspective of the Repo Rate
In the last 10 years, the RBI has made many changes in the repo rate.
Year | REPO RATE (%) |
2015 | 7.75 |
2016 | 6.50 |
2017 | 6.00 |
2018 | 6.50 |
2019 | 5.15 |
2020 | 4.00 |
2021 | 4.00 |
2022 | 6.25 |
2023 | 6.50 |
2024 | 6.25 |
Due to the impact of COVID-19 in 2019-2020, the RBI had cut the repo rate significantly. Now, keeping inflation and economic balance in mind, this new cut has been made.
4) Possible impact of repo rate cut
(a) Impact on the general public
Home loans and other loans will be cheaper – With the reduction in repo rate, banks can give loans to their customers at a lower interest rate.
Impact on savings – Banks can reduce interest rates on FDs and savings accounts.
EMI will be less – Those who have a home loan at a floating rate will get relief in their monthly installments.
Increased consumption – Consumers will have more disposable income, allowing them to spend more.
(b) Impact on home loans.
New home loans will be cheaper – Banks and housing finance companies will offer home loans at a lower interest rate, which can increase the demand for buying a home.
Relief to existing home loan holders – Floating rate home loan EMIs will be reduced, which will directly benefit existing loan holders.
Boost to Real Estate Sector – When home loans are cheaper, the real estate market picks up and the sale of residential properties increases.
Opportunity for First Time Home Buyers – With the interest rate being low, it can be a good opportunity for those who are planning to buy a home for the first time.
(a) The impact on the industry
Benefits to the real estate sector – Cheap home loans can increase the demand for buying a home.
Boost to Automobile Sector – Cheaper auto loans can boost vehicle sales.
Relief to MSME sector – Small and medium industries will be able to invest more as they get cheaper loans.
Support to innovation and start-up sector – New businesses and startups will find it easier to access capital.
(d) Impact on the stock market
A cut in interest rates by the RBI is generally seen as a positive by investors. This is likely to boost the stock market. Realty and banking stocks rose.
5) Change in reverse repo rate and bank rate
The reverse repo rate has been reduced to 6.00 per cent.
The bank rate has now come down to 6.25%.
6) International scenario and India.
Interest rates are also changing in the US, Europe and Australia. The Indian market is also influenced by global policies. The policies of the Federal Reserve can affect Indian investment and the strength of the dollar.
7) The opinion of economists.
Many economists believe that this cut is the right step to revive the Indian economy. However, some experts are concerned that this could lead to an increase in the inflation rate.
8) Relation to the economic policies of the government
Affordable loans are important for the government’s schemes like ‘Make in India’ and ‘Aatmanirbhar Bharat’. The reduction in repo rate will make it easier for traders to get loans.
9) Possibilities for the future
If inflation remains under control and the economic growth rate slows down, the RBI may go for more rate cuts in the future.
10) Conclusions
The 25 basis points cut by the RBI will provide relief to the general public, especially those who are planning to take home loans or other loans. However, interest rates on savings accounts and FDs are likely to fall. This is an important decision for investors and banks, which will help in keeping the Indian economy balanced.
Long-term economic outlook
Inflation Control – RBI may have to take more steps in the future to keep inflation under control.
Increase in investment in the economy – Domestic and foreign investment in India can increase due to cheap capital.
Job Creation – When companies get cheap loans, they can expand and create more jobs.
What’s your opinion
What do you think of the RBI’s decision? Will this move prove to be right for the Indian economy and home loans? Be sure to let us know your thoughts in the comments section.