RBI Cuts Key Rate: First Time Since 2020!

Aakhir Tak – In Shorts

The Reserve Bank of India (RBI) has reduced the key lending rate by 25 basis points to 6.25%. This is the first rate cut since 2020. Sanjay Malhotra chaired his first policy meeting as RBI Governor. The decision aims to boost the economy. A 50-basis-point reduction in the CRR will inject liquidity into the banking system.

Aakhir Tak – In Depth

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) announced a rate cut by 25 basis points to 6.25% on Friday under the leadership of newly appointed Governor Sanjay Malhotra. This decision marks a significant shift in monetary policy and is expected to have wide-ranging effects on the Indian economy.

The rate cut announced by the committee is the first since 2020. This was also the first policy meeting of Sanjay Malhotra as RBI Governor, setting the tone for his tenure. The decision signals a move towards supporting economic growth.

“The RBI’s decision to reduce the repo rate by 25 basis points to 6.25% supplements recent announcements in the budget aimed at boosting spending and spurring economic growth,” said Boman Irani, President, CREDAI National. This statement highlights the alignment of monetary policy with fiscal measures to stimulate the economy.

This supportive monetary policy was imperative, especially after the recent 50-basis-point reduction in the Cash Reserve Ratio (CRR), which has already injected significant liquidity into the banking system. The reduced CRR provides banks with more funds to lend, further boosting economic activity.

As inflation continues to remain a notch higher than the medium-term target of 4%, the central bank has its task cut out: contain inflation, inject liquidity into the banking system, and cut repo rates in the coming quarter too. Balancing these objectives is a delicate act for the MPC.

While the current cut may have a limited direct impact, we anticipate that a further rate cut in the next MPC meeting will provide a stronger impetus to overall demand, accelerating housing sales, particularly in the mid-income and affordable segments. Together, these measures signal a robust framework for sustainable growth, fostering confidence among homebuyers, developers, and investors alike. This is expected to stimulate the housing market and boost consumer confidence.

The rate cut is expected to lower borrowing costs for businesses and individuals, encouraging investment and spending. This should lead to increased economic activity and job creation. However, the RBI must remain vigilant about inflation to ensure that the rate cuts do not lead to overheating of the economy. The central bank’s future actions will be closely watched by economists and investors alike.

Aakhir Tak – Key Takeaways to Remember

The RBI cut the interest rate for the first time since 2020, signaling a positive move for the economy. This decision is expected to lower borrowing costs and stimulate economic growth. It was also the first policy meeting for the new RBI Governor.

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