Interest Rate Cut by banks is possible as RBI is set declare the Repo Rate today at around 2.30 PM. The RBI is ready for the next Repo Rate and good amount of cut is expected. The economists suggest that 25 Basis Points or even 50 Basis Points can be expected. The Repo Rate is presently 6.25 Percent.
What is Repo Rate?
RBI provides loans to the banks and the Repo Rate is the amount of interest for the banks. The RBI decides the Repo Rate for the banks and the banks adjust the loan rate for the private investment in accordance with that. So, it can be fairly said that the interest rates for the banks are directly in proportional relationship with the RBI Repo Rate. The cut in the rate was expected after the demonetization that took place on November 8, 2016.
Impact of Repo Rate
Repo Rate has a huge impact on GDP, Growth, and Inflation of the country. As the loan interest comes down after the reduction in Repo Rate, the private investment increases and so does the growth. However, that may increase the inflation as well. However, in a growing economy, it is very important to give a sustainable and positive financial environment. In last July to September, the country grew at 7.3% but the forecast has been reduced after the demonetization and currently stands at 6.9%. The inflation is however 4% and that is quite steady.
Interest rate cut may encourage new investments and also help the private investments to grow at large. This would also help the growing rate of the country. The next rate cut can be expected during April Next year where the RBI may consider the inflation rate and the growth rate into consideration. If the Repo Rate gets reduced to 6% today, that it would be the lowest in last 6 years.
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