Growth on track, says PM; RBI likely to cut rates

Consumer loans — home, auto and personal loans — may finally get cheaper with the Reserve Bank of India (RBI) likely to announce an interest rate cut in its policy review on March 19. PM speak @ Parliament

Consumer loans — home, auto and personal loans — may finally get cheaper with the Reserve Bank of India (RBI) likely to announce an interest rate cut in its policy review on March 19.

With the budget sending a strong signal about the government’s fiscal consolidation exercise, the repo rate — the rate at which banks borrow from the RBI — could be reduced by 25 basis points (100 basis points is 1 percentage point).

Besides reducing interest rates, the move is also likely to fuel investments by making corporate loans cheaper.

Earlier in the day, Prime Minister Manmonhan Singh, had said the economic slowdown was a temporary phenomenon and the country would clock 7-8% GDP growth in next two to three years.

Replying to a debate in the Rajya Sabha, Singh said the government was determined to provide an impetus to the economy.

Chidambaram, who also met RBI governor D Subbarao, said the RBI would take a call on interest rate cut based on the economic situation. “The government has walked the talk... now RBI will take a call based not only on that but on the overall economic situation.”

Bankers said the RBI is also likely to reduce the cash reserve ratio — the minimum amount of reserves that banks are mandated to keep with the RBI — by 25 basis points to ease liquidity.

The RBI could look at reducing the repo rate by 25 basis points, Abheek Barua chief economist, HDFC Bank told HT.

“Rates could be reduced by 25 basis points,” said DK Joshi, chief economist, Crisil.