RBI repo rate cut to boost growth, say analysts

Dubai - The RBI has cut its repo by 25 basis points to 6 per cent today.

The Reserve Bank of India (RBI) has cut the repo rate by 25 basis points to 6 per cent today. Repo rate is the rate at which the central bank of a country lends money to commercial banks in the event of any shortfall of funds. Repo rate is used by monetary authorities to control inflation.
What does this mean to the Indian economy in general? "The RBI has cut its repo by 0.25 per cent on the backdrop of low inflation expectations for the near future and to support the overall growth of the economy. Measures have also been taken by RBI to inject durable liquidity into the financial system which will enable the transmission of lower rates to borrowers. The overall global economies has been benign, given this, the GDP growth is projected at 7.2 per cent (from 7.4 per cent earlier) for 2019-20," said Krishnan Ramachandran, CEO of Barjeel Geojit
He added, " The equity markets has taken the rate cut in its stride, the focus now will shift to the corporate earnings for JFM and also on the ensuing elections. With record FPI flows of close to $ 5 billion in the month of March and with the improved signals on the domestic market flows the markets are expected to maintain its upward momentum, especially in value based investment opportunities, in the near term."

Anuj Puri, Chairman - ANAROCK Property Consultants, said: "As hoped for, the RBI has reduced the repo rate by another 25 basis points. Back-to-back repo rate cuts by the RBI are indeed the perfect start to a new financial year, resulting in overall reduction of 50 basis points since February 2019. The repo rate now stands at 6 per cent - returning to the same level as in April 2018. This will augur well for the Indian real estate sector and keep the momentum going in the coming year.

The sector already saw an uplift in homebuyer sentiment due to the multiple sops offered by both the Government and the RBI in just the first three months of 2019.
These measures have contributed to a 12 per cent increase in housing sales in Q1 2019 across the top 7 cities in India.
"The RBI has done its part by slashing the repo rates. The onus is now on the banks to concurrently reduce home loan rates further, thereby encouraging more fence-sitters to take purchase decisions and giving another boost to the real estate sector," added Puri.
However, Srikanth Iyengar Managing Partner Five Capital was cautious and said: "The key challenge is in transmission of the rate cut in the economy. The markets had been factoring more accommodative stance by RBI over the last few days and thus was disappointed. Going forward, the budget will be presented in July and thus RBI will undertake further cuts post July. The risks of elnino effect and oil price risks will have played out by then. Status quo is expected in the June monetary policy meet."
The domestic GDP growth is also slowing down along with the global growth. The growth projections have been revised downwards from 7.4 per cent to 7.2 per cent, pointed out Iyengar.

Similalry, Dr VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said: "The market trend, going forward, will be influenced by the capital flows into the market. So long as the Fed and ECB remain dovish, more flows can be expected into the market, which can impart resilience to the market. High valuation of markets remain an area of concern." - sandhya@khaleejtimes.com
Highlights of RBI monetary policy
Following are the highlights of the first bi-monthly monetary policy announced by the RBI on Thursday:

* Short-term lending rate (repo) reduced by 25 bps to 6 pc;

* This is second back-to-back rate cut;

* RBI maintains Neutral stance on the monetary policy;

* Four out of six MPC members voted in favour of rate cut;

* GDP growth projection lowered to 7.2 per cent for 2019-20;

* RBI revises downward retail inflation estimate to 2.4 per cent in Q4 FY19.

* MPC notes output gap remains negative and domestic economy facing headwinds;