EMIs set to fall as RBI cuts repo rates by 50 basis points

Mangalore Today / CNN-IBN

Mumbai, April 17: The Reserve Bank of India (RBI) on Tuesday cut the repo rate by 50 basis points from 8.5 per cent to 8.0 per cent but did not touch the cash reserve ratio, which remains at 4.75 per cent. The cut in the repo rate is an indication that banks could reduce the interest rates on home and car loans.

 

 

Tuesday’s rate cut announced by the RBI in its annual monetary policy for 2012-13 is the first one in the last three years. The reverse repo rate under the liquidity adjustment facility, determined with a spread of 100 basis points below the repo rate, stands automatically adjusted to 7.0 per cent.

In another good news for the consumers, the RBI has abolished the pre-payment penalty on home. Accepting the Damodaran Committee recommendations to abolish foreclosure charges levied by banks on prepayment of home loans, the RBI has instructed permit banks to not levy foreclosure charges/pre-payment penalties on home loans on a floating interest rate basis.

While announcing the credit policy RBI Governor D Subbarao said that the liquidity conditions were moving towards RBI’s comfort zone and added that there was a need to increase fuel prices for macro economic stability.

After hiking policy rates for 13 consecutive times between March 2010 and October 2011, the regulator took a pause to support India’s falling growth momentum. On April 21, 2009; the apex bank had last reduced its key policy rates by 25 basis points. But, it cut the CRR by 125 bps so far in 2012 to ease the tight liquidity situation.

The latest rate cut move came in line with market expectation. Many felt, RBI would give equal importance to growth after a series of rate cuts to stem the rising rate of inflation. Consequently, the rate of inflation eased to 6.9 per cent in March from 10 per cent during the fiscal year. The average inflation rate in India was 7.99 per cent between 1969 and 2010.