RBI Monetary Policy 2017 : India cut Repo Rates by 25bps to 6%

RBI RBI policy repo rate

The Reserve Bank of India cut its policy rate on Wednesday by 25 basis points to 6 percent, the lowest since November 2010, as slumping inflation allowed the central bank to focus on boosting an economy growing at the slowest pace in over two years.

Under MCLR based lending, do not, therefore, expect the EMIs to fall every time RBI cuts repo rate. The roll-out of the Goods and Services Tax has been smooth and the monsoon normal.

A Jefferies report earlier stated that a 60-90 basis points reduction in one-year bank funding rate could shift the marginal volume from a non-bank to a bank. The repo rate is the rate at which banks borrow from the central bank.

The lender has forecast inflation will be four per cent or lower at the end of this year.

Focusing on the business sentiment in the country, the RBI said: "The manufacturing sector reflects expectations of moderation of activity in Q2 of 2017-18 from the preceding quarter". The cost of funding for real estate developers should also now reduce. The stock market, on the other hand, is touching greater heights. As a result, the banking industry is now going through a painful clean-up exercise and it would take many more years for these entities to undo the past mistakes.

Avneesh Sood, Director, Eros Group: GST has been implementation and buyers' queries are increasing day by day. "Bank Nifty may set the tone towards 25800 while base is seen at 24800".

The panel, in its previous bi-monthly review in June, retained the repo rate at 6.25% for the fourth straight time citing risk to inflation. "Currently the overall demand for loans is at the lowest". The justification for today's reluctant rate cut in the policy document is shadowed by an important caution on why the MPC will be even more watchful ahead in the inflation fight. Banks must follow suit in order to pass on the benefit to the customers. "The private investment cycle remains weak and the reduction in the rate will be an investment sentiment booster", said Pankaj Patel, President, Ficci. It would also spur growth in the rate sensitive consumer durables sector. "This reinforces my view of room for incremental rate cuts to the tune of 50-75 bps (or 0.5-0.75 per cent) in coming months, which will reinforce RBI s parallel efforts to address the twin balance sheet problem and support growth recovery".

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