The cut has enthused the industry as well as middle class. While the former could get cheaper bank capital for companies, latter can hope for lower EMIs for home-loans.
In a press release RBI said “it has been decided to reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 7.75 per cent to 7.5 per cent with immediate effect.
RBI also intends to keep the cash reserve ratio (CRR) of scheduled banks unchanged at 4.0 per cent of net demand and time liabilities (NDTL) and will continue to provide liquidity under overnight repos at 0.25 per cent of bank-wise NDTL at the LAF repo rate and liquidity under 7-day and 14-day term repos of up to 0.75 per cent of NDTL of the banking system through auctions.
Housing sector which has fallen on lean season for last 2-3 years, heaved a sigh of relief with cheaper home loans. Inventories of many builders saw hardly any activity threatening to drive people away from this sector. We have to capitalize on the changed situation, commented Pramod Singh, CMD of Meadow Vista.
The big news is that this is the second rate cut by RBI in the last three months. The sensex welcomed the move by closing high last Wednesday when the rate was reduced as also the rupee strengthened.
Industry watchers say that a robust budget coupled with a cut in the repo rate is expected to ignite the market. In the press release RBI said that it will set a new retail inflation target of below 6% by January 2016 and 4% by March 2017.