RBI Set to Cut Rates Again? EMIs on Home, Car, and Personal Loans May Drop

The Reserve Bank of India (RBI) may announce a 25 basis point cut in the repo rate in its Monetary Policy Committee (MPC) meeting to be held between August 5 and 7. This big estimate has been made in a report by SBI. If this comes true, then it can be considered as ‘Early Diwali’, which can reduce your loan EMI and increase the flow of money in the market. Come, let’s know what benefits this cut can bring to you and the country’s economy.

SBI estimate

The latest report of SBI states that if RBI cuts the repo rate, then its direct benefit will be seen in credit growth. Especially during the festive season, it can give a strong boost to the economy. The report also states that cutting the repo rate before Diwali has always increased credit growth.

Example of 2017

According to the report, when the repo rate was cut by 25 basis points in August 2017, there was an additional credit growth of ₹1,956 billion till Diwali. About 30% of this was personal loans. This data clearly shows that when people get loans at cheaper rates, they make more purchases and money circulates in the market, which benefits the economy.

Why can the repo rate be cut?

According to the SBI report, the main reasons for the repo rate cut can be:

Inflation under control

For the last several months, inflation has been within the target set by the RBI. In such a situation, continuing a tight monetary policy can harm the economy’s production.

Risk of a reduction in production

If the repo rate cut is delayed further, it can slow down the growth of the economy. Monetary policy takes time to formulate, so it is important to decide at the right time.

What is the repo rate

The repo rate is the rate at which the Reserve Bank of India (RBI) gives commercial loans to other banks. With a reduction in the repo rate, the bank gets cheap money from the RBI, due to which they also reduce the interest rates of home loans, car loans, and personal loans. This directly benefits the customers, as their EMI (Equated Monthly Installment) is reduced.

A 100 basis point cut this year

RBI has cut the repo rate by 100 basis points, i.e., one percent, so far this year. Currently, the repo rate is at 5.5 percent. If there is another cut in August, it will be the third consecutive cut in the repo rate, which will be a positive sign for the market.