India's central bank rate cut is likely to please Modi

India's central bank rate cut is likely to please Modi

The repo rate cut will lead to a decrease in EMIs on Home Loans, Car Loans and Personal Loans as the banks would likely decrease the interest rates.

India's Monetary Policy Committee cut its benchmark interest rate by 25 basis points on Thursday and moved to a more accomodative stance, just months after it had cautioned against rising inflation risks and said it was in a "calibrated tightening" mode. The reverse repo rate stands adjusted to 6.0 per cent, and the marginal standing facility rate and the bank rate has been kept 6.5 per cent.

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, vehicle loan and corporate borrowers.

A former economic affairs secretary, who now has the charge of central bank and is perceived to be close to the Union government, will not take "no" from banks on rate cuts too quickly.

The RBI revised the projection for Consumer Price Index inflation downward to 2.8% in the fourth quarter of 2018-'19 financial year.Retail inflation declined from 3.4% in October 2019 to 2.2% in December, which the RBI said was the lowest in the last 18 months.

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"Headline inflation is projected to remain soft in the near term reflecting the current low level of inflation and the benign food inflation outlook", the statement said, but cautioned that beyond the near term, some uncertainties warrant careful monitoring such as volatile vegetable prices, crude oil prices and trade tensions.

The six-member MPC, headed by Reserve Bank of India Governor Shaktikanta Das, began its meeting on Tuesday and announced its decision on Thursday.

The RBI policy is a very dovish one and signals further rate cuts.

This was not only the first MPC meeting under Das, but comes less than a week after the Interim Budget, which was packed with sops to small farmers and the middle-class with an eye on the upcoming general elections. The customary post-Budget board meeting was earlier scheduled for February 9 but has now been deferred.