The Reserve Bank of India (RBI) on Tuesday lowered its benchmark policy rate by 0.25% points for the second time in the year to help revive economic growth, but cautioned that the scope for further easing is limited as inflation remained a worry.
It may mean nothing for your EMIs.
Bankers said they would wait for the current fiscal year to end before passing on the benefit to home, auto and corporate borrowers, EMIs (equated monthly installments) are unlikely to come down anytime soon.
The central bank slashed the repo rate, the rate at which it lends to banks, to 7.50% in its mid-quarter policy review but added a big if on whether the trend would continue.
“Even as the policy stance emphasises addressing the growth risks, the headroom for further monetary easing remains quite limited,” said D Subbarao, governor, RBI. He hinted that more action was needed from the government to make things better.
“Key to reinvigorating growth is accelerating investment,” said the governor. “The government has a critical role to play by remaining committed to fiscal consolidation, easing supply bottlenecks and improving project implementation.”
The short-term borrowing rate or reverse repo would also come down to 6.50%. However, the cash reserve ratio (CRR) has been retained at 4% on expectations that the government will start spending more.
Banks ruled out an immediate cut in interest rates.
“Transmission would happen but it would be happening with lag,” said N Sheshadri, executive director, Bank of India. “Banks would find it difficult to have an immediate transmission but definitely transmission would happen with lag, may be sometime in April or later.”
A recent uptick in headline inflation, rising food price-driven consumer inflation and a record-high current account deficit limit the RBI’s space for monetary easing despite pressure from a government facing elections in 2014.
Wholesale price-based inflation in February stood at 6.84% against 6.62% in January. “Notwiths-tanding moderation in non-food manufactured products inflation, headline inflation is expected to be range-bound around current levels,” said Subbarao.
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