RBI Likely to Cut Repo Rate Again, EMIs Set to Become Cheaper

The six-member monetary policy committee (MPC) of the Reserve Bank of India (RBI) is scheduled to announce the fourth bi-monthly monetary policy for 2019-20 on Friday, 4 October.

Ahead of the rate-setting meeting that began on 1 October, central bank governor Shaktikanta Das hinted that the benign inflation provides room for further monetary policy easing while fiscal space is limited.

The slashing of benchmark interest rate, if put into effect, is also expected to revive the sagging economy.

The Central bank has already slashed the repo rate four times consecutively this year amounting to 110 basis points, or 1.1 percent in aggregate.

At its last meeting in August, the MPC reduced the benchmark lending rate by an unusual 35 basis points to 5.40 percent.

Experts opine that another rate cut is on the cards as the government's hands are tied and the onus of taking initiative is now on the Central bank.

Shanti Ekambaram, President, Consumer Banking, Kotak Mahindra Bank, told news agency PTI that with inflation still within the RBI's medium-term target of 4 percent, the MPC has the headroom to cut the repo rate further.

“However, the recent volatility in crude oil prices and the fiscal measures announced by the government will have an impact on inflation in the medium term and the fiscal deficit. Hence, we expect the MPC to be more measured in its response with a rate cut of 20-25 basis points in the October policy,” she said.

The further reduction of repo rate will not only bring down the lending rates but also incentivise investment and boost consumption, she further said.

Rate Cut Significant for Consumers

The MPC meeting came in the backdrop of the RBI’s mandate to banks to link their loan products to an external benchmark, like repo rate, for faster transmission of reduction in policy rates to borrowers, from 1 October.

Ahead of the meeting, the Das-headed Financial Stability and Development Council (FSDC) sub-committee took stock of the prevailing macroeconomic situation.

Experts and the industry feel that low inflation provides enough headroom for the RBI to further lower the policy rate, especially when the festive season has just begun.

With liquidity concerns in the NBFC sector almost taken care of, the real estate sector too is hopeful that the RBI will go in for the much needed rate cut to boost demand for affordable housing.

(With inputs from PTI)