Home Loans Could Become Cheaper Due To RBI Cutting Repo Rates

Mumbai: In a move that is guaranteed to bring relief to millions of Indians, The Reserve Bank of India (RBI) on Tuesday cut the benchmark repo rate by 25 basis points to 6.5 per cent, with its Governor Raghuram Rajan assuring that the monetary stance will remain “accommodative.” The move ensures that that the chances of home loans getting cheaper in very much likely to happen.

The decision was among the host of steps announced by Rajan to improve liquidity. But stock markets fell as the rate cut was widely anticipated and traders booked profits. The sensex, which had closed on Monday at 25,400 ended on Tuesday at 24,884 — down by 516 points or 2.03 percent. Announcing the first rate cut for the year, Rajan said food inflation eased for the first time in the second half of 2015-16. This occurred on a decline in prices rather than favorable base effect. Similarly, fuel prices have also been eased.

Speaking on the issue, Rajan said: “We have cut interest rates by 150 basis points since the beginning of the accommodative cycle.” The repo rate, which is at its lowest in five years, will help banks reduce borrowing costs, helping boost economic growth. 

Rajan also reduced the daily requirement for maintaining Cash Reserve Ratio (CRR) to 90 percent of the statutory requirement from 95 percent earlier. CRR is the portion of bank deposits that has to be mandatorily parked with RBI. What this means is that while CRR continues to be at 4 percent, banks will need to borrow less as they were earlier over-borrowing to meet the CRR requirement fearing a default. Given the tone of the RBI's statement, bankers expect more rate cuts to come.