RBI Rate cut and impacts

04 Mar 2015 (AIR News Analysis)

Impact of RBI Rate cut on Inflation.

Participants: A K Gupta, Director/ Banker’s Training Institute and Sanjay Jha, Indian Bureau News, ITN News/London.

Key policy Repo Rate cut: 7.75 to 7.5 percent with immediate effect; Cutting Interest rate to boost growth; unexpected cut-down;

Effect on the loan, EMI?

EMI depends on 3 factors- cost of fund, negative impact of SLR/CRR, NPA, on return of the equity and expenses – these factors determine the bank’s Base rate. Interest rate will be reduced only if the rate of deposit is reduced;

Inflation 5.1% (Jan 2015) as measured by the new index (well within the target). How you see it in this context?

Monetary policy framework signed between the RBI & Government – 2 to 3 years down the line – to target the inflation rate around 4% - keeping the inflation in manageable limits;

Liquidity in the market?

Improve the borrowing by the bank much better; Borrowing of bank from RBI is only 1.5%; It will help more liquidity – reduced interest rates – but not to the inflation;

Oil prices, unexpected geopolitical events? In this context?

Inflation targeting vs Focus on the Growth?

Fiscal deficit target of 3% postponed a year (2017-18); coordination between the finance minister and the RBI governor;

Steps for Inflation targeting?

Subsidy cut, Investment Expenditure- Infrastructure development;

06 Mar 2015

RBI ease Home loan

Participants: Dr. Maharaj Kishan Butt, Maharaj Institute of Management studiesand Sanjay Thappar, Economic Journalist;

Govt. announced Housing for all Scheme –

How do you see this Rebate given by the RBI in terms of boosting ‘housing for all’?

Rs. 50 lac has been assigned in the last budget under PSL of the banking;

Reduction in the Repo rate is a good step. (Uplift the demand in the lower economic strata)

Passing on the benefit – RBI first target at the inflation – this would pass on further to increase demand – at present the demand for the residential apartment has be reduced to 35% in the important metros;

Private sector banks vs Public sector banks – role of passing on the benefit to the public/ costumer; How this can be done?

Make in India – demand macroeconomic business environment – easing the business –

Speculation like RBI decrease Key policy rate to further level. Will it happen?

Jan 2016 – depending upon the monsoon – policy rate might be further reduced;

$20 Bn target – investment by FII – Bond market will change with respond to the policy rate & oil pricing;  

Saving policy in the form of Insurance policy – reducing general exemption limits;

Also Note: From “RBI Monetary Policy” ‘https://www.rbi.org.in/scripts/PublicationsView.aspx?id=16216#II2’

Drivers of Inflation: Sugar prices moderated in consonance with global prices. However, prices of protein-rich items (eggs, fish, meat, milk and pulses) exhibited downward rigidity, reflecting structural mismatches between demand and supply.

Crude prices could impact economic activity and inflation in India through several channels: (i) higher real incomes for consumers; (ii) lower input costs, boosting corporate profitability and inducing investment; (iii) lower current account deficit (CAD); and (iv) improved market sentiment. These favourable effects could, however, be offset by weak global demand.

Also refer:

http://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/CFS070114R_CF.pdf

http://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/PSGRE020315.pdf