As it was quite evident considering the low in economy that RBI will not take this unexpected approach, but RBI today gave a booster shot for the growth by boiling down the repo rate by 50 basis points making it to 6.75%. It is a much needed nudge as was required from a long time to make a disparity in the ongoing low in the economic scenario.
RBI has even reduced the inflation projection to 5.8% for January 2016, which was 6% percent earlier. Repo rate is the rate at which the central bank of a country (RBI in case of India) lends money to commercial banks in the event of any shortfall of funds.
While the Reserve Bank of India kept all other rates and ratios stagnant. It was quite an important move as was proposed by several government policy makers that cut in repo rate is quite important to trigger growth in the economy. The expected cut by the analysts and economists was up to 25 basis points.
“Despite the monsoon deficiency and its uneven spatial and temporal distribution, food inflation pressures have been contained by resolute actions by the government to manage supply,” the RBI said or 0.25%.
However, the rate cut did not control the shaken market roots and sentiments of many though it acts as an ointment on the soaring pain. Though the Sensex has curbed losses, it was down 28 points at 25,589 in a highly fluctuating market.
“The disinflation has been broad-based and inflation excluding food and fuel has also come off its recent peak in June,” the RBI Governor Raghuram Rajan said in his statement.
Well, the RBI governor surprised one and all cutting their repo rates to a 4 year low, a lowest repo rate since March 2011 seems the biggest single monetary policy move.
The big rate cut is expected to bring cheer to millions of consumers who pay home loans EMIs or are looking to take a loan. Dr Rajan said he will work with the government to ensure effective transmission of interest rates.
Well, he further added “I don’t think we were excessively aggressive… it’s not a Diwali present.”