Reduction in Inflation Pave the Way for RBI to Cut Rates

Reduction in Inflation Pave the Way for RBI to Cut Rates

The substantial reduction in inflation in last few months paves the way for RBI to cut repo rate in recent monetary policy review.

This is the third policy rate cut in last five months, where the central bank had cut the rates by 75 basis points cumulatively. In last few months, a number of banks like ICICI, SBI, Axis Bank and HDFC had reduced their landing rate in the range of 15 to 25 basis points for home loan so far.

With further reduction in policy rates we can expect further rate cut for home loans from banks in coming months. There is an overall increase in market momentum in terms of commercial leasing, employment, etc. but the residential market has still not picked up to its earlier level.

The rate cut will help to reduce the overall burden for the residential buyers and may boost residential sales across the markets.

Arvind Subramanian, Chief Economic Advisor (CEA), welcomed the rate cut by Reserve Bank of India on Tuesday. RBI Governor Raghuram Rajan cut repo rate by 25 basis points in the bi-monthly meet but warned against rising inflation by January.

Praising Rajan, the CEA said both the government and the RBI are in sync over such growth aiding policies, particularly in the face of weak external factors.

Talking on inflation and monsoons, he said this year the country is once again staring at weak monsoon that will give rise to inflationary trends. He assured that the government and RBI will work together to ensure the macro-economy remains strong, while investment and growth are accelerated towards their potential.

He added that the benefits of this cut are dependent on its transmission to people. When asked about the possibility of further rate cuts, he said "we will have to wait."