Published: Fri, February 08, 2019
Money | By Bruce West

Home and vehicle loans to be cheaper as RBI cuts rates

Home and vehicle loans to be cheaper as RBI cuts rates

The Reserve Bank of India (RBI) will probably change its monetary policy stance to "neutral" from "calibrated tightening" on Thursday and keep interest rates on hold.

According to Indian Express reports, the reverse repo rate under the LAF now stands adjusted to 6.0 per cent and the marginal standing facility (MSF) rate and the Bank Rate to 6.5 per cent. The MPC has also chose to change the monetary policy stance from "calibrated tightening" to "neutral".

The repurchase rate was reduced by 25 basis points to 6.25 per cent, a decision predicted by just 11 of 43 economists surveyed by Bloomberg News, with the rest expecting no change.

Das, in his maiden monetary policy review, has moved away from the usual practice of announcement 2:30 pm.

India's new RBI governor Shaktikanta Das "has delivered what the Modi government was hoping for", said Mark Williams, chief Asia economist of Capital Economics, in a note. Most global brokerage firms see another rate cut by the central bank but at the same time suggested investors remain cautious as transmission of rates will be the key. It also stayed below RBI's inflation target of 4 per cent for five consecutive months. The Federal Reserve has changed direction, and now many analysts expect no USA rate hikes this year, after four in 2018.

RBI Governor Shaktikanta Das cut the interest rate by 0.25 percent to 6.25 percent, a move that will lead to reduction of lending rate by banks leading to lower EMI for housing, auto loan and corporate borrowers. The customary post-Budget board meeting was earlier scheduled for February 9 but has now been deferred. With headline inflation around 4 percent, the central bank may use policy space to boost growth.

The committee voted 4:2 to pare the repo rate by 25 basis points to 6.25 percent.

Addressing that criticism, RBI deputy governor Viral Acharya on Thursday said that the central bank takes this criticism seriously.

The policy decision was a tricky one for Mr Das, a career bureaucrat who was installed as governor after Urjit Patel quit in December amid a heated public battle with the state over the central bank's autonomy.

Some economists said Das, a seasoned bureaucrat, is likely to promote growth and aid the fragile financial sector, as inflation is comfortable at present, in December dropping to an 18-month low of 2.19 percent. The governor also indicated that there was scope for further rate cuts this year if prices do not rise.

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