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National: Further rate cuts expected after credit policy review

Looking at the present economic conditions, it is anticipated that Reserve Bank of India (RBI) may further cut key rates after mid-quarter review of the Credit Policy, which has been scheduled for 17th June. There are hopes that falling inflation rate will have positive impact on the key interest rates and after review the ruling bank will cut key rates to revive the economy. Since November 2009, this is first time that Wholesale Price Index (WPI) based inflation has come down to 4.89 percent against estimated 5.5 percent.


After Credit Policy review in May, the repo rate was reduced to 7.25 percent, which was lowest since May 2011. After reducing repo rate by 25 basis percentage points, the RBI informed that there is scope to reduce key rates further. It was also suggested that the next rate cut will depend on inflation figures and if any dramatic change is noticed, the bank will take that into consideration. In addition to decline in inflation there are other factors that prompt the RBI to cut key interest rates in next review. These factors include a slowing economy, bearish commodity price outlook, and expectations of a normal monsoon.


In addition to key interest rates, banks also expect a cut in the Cash Reserve Ratio (CRR), which was left unchanged to four percent in May Credit Policy Review. It will help banks reduce prime lending rate to 7.5 percent from 9.75-10 percent at present. It will also be beneficial for home loan borrowers on floating rate scheme, because their EMIs will reduce due to reduced interest cost.


To get details of May Credit Policy review click on http://www.favista.com/cms/blogs/2013/05/04/national-realtors-welcome-rate-cuts-with-expectations-of-further-reduction

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