RBI slashes repo rate by 25 basis points

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RBIThe Reserve Bank of India (RBI) has slashed its repo rate under liquidity adjustment facility (LAF) by 25 basis points with immediate effect. The repo rate as per the latest cut is now at 6 percent.

This is so far the second consecutive rate cut from the central bank under the guidance of Governor Shaktikanta Das, after a rate cut in February.

On Thursday, the RBI announced its first bi-monthly policy statement of the current financial year.

“It is necessary to resurrect India’s consumer demand and economic growth before a synchronous downturn in advanced economies heightens market volatility. Today’s rate cut and moderation in liquidity coverage ratio coupled with recent instances of liquidity injections indicate that RBI is cognisant of these risks. These measures would certainly help ease liquidity and improve access to cheaper credit by India Inc as well as retail consumers,” said Khushru Jijina, Managing Director, Piramal Capital and Housing Finance.

 “The focus to align the Indian housing finance securitisation market as well as the secondary market for corporate loans with international best practices as announced today will essentially deepen these markets and ensure better price discovery. We look forward to the detailed notes on RBI’s decision to allow Non Deposit taking NBFCs to apply for Authorised Dealer licenses which is expected to expand the forex market,” he added.

Accordingly, the reverse repo rate under the LAF is adjusted at 5.75 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 6.25 percent.

“This is a piece of fantastic news as this 25 bps cut would even further boost the realty sector, especially affordable and mid-segment housing, which is a what the government wants under its Housing for All policy. We can expect banks to pass on this cut to home loan borrowers in the coming weeks, which will provide added incentive for homebuyers. We can now confidently say that end user buyers are now back in the market to not just enquire but buy their selected homes,said Prasoon Chauhan, CEO, HomeKraft, an ATS company.

The six-member Monetary Policy Committee (MPC) chaired by RBI Governor also resolute to maintain the neutral monetary policy stance.

These decisions are in alignment with the objective of attaining the medium-term target for consumer price index (CPI) inflation of 4 percent within a band of plus or minus 2 percent while sustaining growth.

“The RBI has adopted a very sensible and pragmatic approach by cutting the repo rate by 0.25 percent while keeping the policy stance neutral. It takes cognizance of the likelihood or potential for inflationary pressures emerging from food prices and fuel prices, and also fiscal pressures from the large government borrowing program. The liquidity management through OMOs, Repos and also the occasional currency swaps would help a somewhat better propagation of the impact of rate modifications to the lower levels,” said Dr Joseph Thomas, Head Research- Emkay Wealth Management.

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