RBI Repo Rate Cut – Who would benefit and who would not?
Today, the RBI Governor, Rajan has announced RBI Interest rate cut by 0.25% / 25 basis points. RBI has cut the repo rate after 6 months. Earlier, RBI has cut repo rate in Sep-15 for 50 basis points. While interest rate cut by 0.25% brings down home loan, auto and corporate loans, does it really bring cheers to stock markets and investors? Who would get benefitted from this RBI Repo Rate cut now? How markets and investors are reacting to this?
Highlights of RBI Repo Rate cut in April, 2016
Today RBI had first bi-monthly monetary policy this current fiscal. It is almost after 6 months, RBI has cut the repo rate now.
- RBI repo rate (Short Term Lending Rate) has been reduced from 6.75% to 6.5%, a reduction of 0.25% / 25 basis points.
- The Major focus of the policy is to address liquidity issues.
- RBI has eased liquidity issues of the bank by cutting the minimum maintenance of bank cash reserve ratio from 95% to 90% with effect from the fortnight of April 16.
- RBI has cut the repo rate for 4 times from Jan-2015 and it calls it as “accommodative cycle”.
- RBI Governor, Mr. Rajan indicated that RBI policy action is far effective now as banks has moved to marginal cost based lending from April 1st.
- With this repo rate cut, RBI has reduced 1.5% rate cut in last 1 year and 3 months.
Who would benefit from RBI Repo Rate Cut?
- Home loans, auto loans and other loans would become cheaper.
- Individuals dreaming a new house can get cheaper home loans now. Individual borrower / corporate borrower of loans from banks would get benefitted as they would get loans at lesser interest rates.
- You can drive home your dream car as your auto loans may become cheaper. Majority of the banks didn't pass the credit in last 1 year.
- From Jan-15 onwards, RBI had 6 repo rate cut of 150 basis points (1.5%), however, banks have lowered only 60 basis points / 0.6% complaining tight cash conditions.
- With liquidity conditions eased, we should be able to see some positive side on bank cutting rates.
Who are the losers with RBI Repo Rate Cut?
- As always, biggest losers would be investors in stock markets.
- FII’s have been neutral for while on Indian Capital markets, hoping there would be further rate cut up to 0.5% / 50 basis points. However, with RBI rate cut of 0.25% / 25 basis points and conservative monetary policy, FII’s may take steps backward and may put their investment decisions hold (which we have been seeing in the last few quarters). We should accept the fact that while we do not depend entire on FII investments in Indian stock markets, they drive the stock market on key occasions like when there is RBI repo rate cut.
- Today when RBI has announced its repo rate cut, stock markets already crashed 516 points and I expect this would continue for a few more days.
Conclusion: RBI repo rate cut is good for loan borrowers as home loans, auto loans and personal loans and corporate loans would be cheaper. However, an RBI Repo Rate cut may not bring cheer to all stock market investors. If you are planning to fresh investments in stocks, you may hold your decision, look for markets to stabilize and invest in stocks. Yes, you can encash every opportunity in case there are market crashes in coming days.
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RBI Repo Rate Cut – Who would benefit and who would not