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Cause to celebrate! Yet another rate cut by the RBI!

11 Mar 2015


Last week, on 3 March, the Reserve Bank of India announced another cut in repo rate by 25 basis points with immediate effect. This brings the interest rate at which banks borrow from the RBI to 7.50%.

This is the second time this year that the RBI has made a cut of 25 basis points. The first was in January, when the rate was cut from 8.0% to 7.75%. In January this year, Nirmala Seetharaman, MoS for Commerce and Industry, had lauded the RBI move to cut the repo rate by 25 points as the  beginning a low interest rate regime.

The present cut brings the repo rate to 7.50%. While the January cut has not yet been passed on to consumers, business analysts believe it is only a matter of time before they benefit from this cut in repo rate. Cash-flow constraints towards the end of the FY are probably the reason why commercial banks have not cut the rate of interest for consumers of housing and other.

Also, realistically speaking, after a cut in the repo rate, it takes some time for the banks to pass on the benefit to their customers. However, according to Anil Kothuri, President and Head of Retail Finance at Edelweiss, we should be seeing lower EMIs by April this year.

A low lending rate indicates a healthy economy. A cut of 0.5% in banks' lending rate is bound to lower the EMI payable and this will significantly impact the sentiment in the real estate sector. The housing sector sees this as a welcome move as lower EMIs will surely be an incentive for borrowers to invest more in real estate. The positive mood created by Budget 2015 and the current trends in the economy could indicate a further rate cut later this year by the RBI, which in turn can only help borrowers seeking to invest in the real estate sector.

Arundhati Bhattacharya, Chairman of State Bank of India, has stated that SBI will certainly be taking a call on cutting the base rate for consumers of home and motor loans.

So, those of you who are dreaming of owning your very own home, now is the time to start checking out what's available. The market is really looking up.