RBI Repo Rate cut – Does it bring cheers to investors?
Today, RBI Governor, Rajan has announced RBI Interest rate cut by 0.25% / 25 basis points. RBI has cut the repo rate by the 3rd time in this year. RBI also hints that there may not be any more repo rate cuts in the near term. 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? Does FII’s hold their investment decisions with this RBI Repo Rate Cut?
Also Read: What is RBI Monetary Policy and how does it impacts you as investor?
Highlights of RBI Repo Rate cut in June, 2015
- RBI repo rate (Short Term Lending Rate) has been reduced from 7.5% to 7.25%, a reduction of 0.25% / 25 basis points.
- Rajan asked banks to pass on the 0.75% rate cut, which has been cut from January onwards to individual loan borrowers / corporate borrowers.
- No change in Cash Reserve Ratio (CRR) which is at 4%.
- No change in Statutory Liquidity Ratio (SLR) which is at 21.5%
- Rajan indicated that they are lowering projections of economic growth from 7.8% (indicated in Apr) to 7.6% due to global factors and likely impact of below normal monsoons.
- Rajan says Inflation still remains worrisome as it expects price rises to subdue till August before it rises to 6% by Jan-2016.
- RBI expresses concerns about rising crude oil prices by 9% from Apr onwards.
- Rajan adds saying global data not giving positive picture. Global recovery is slow and it is worrisome that US numbers has fallen by 0.7% in first quarter thought its currency is at record high.
Who would benefit from RBI Repo Rate Cut?
Individual borrower / corporate borrower of loans from banks would get benefitted as they would get loans at lesser interest rates. Majority of the banks has not passed to the credit of 0.75% repo rate cut of RBI from Jan. If banks pass on this, it would be a big benefit to loan borrowers.
Who are the losers with RBI Repo Rate Cut?
While banks need to borrow at lower cost, this reduction coming straight from RBI, hence they would get impacted to some extent. Biggest losers would be investors in stock markets. FII’s have been bullish 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 step backward and may put their investment decisions hold. FII’s may not be bullish any more on Indian market. Overseas investors already pulled Rs 14,000 Crores from Indian stock market in May month, first month of net outflows in almost 2 years.
Also Read: Should you invest in Gilt Mutual Funds during fall in interest rates?
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 investors. There is chance that FII’s may pull money gradually from stock markets over the next couple of months, hence investors in the stock market need to be little careful now about making any fresh investments.
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RBI Repo Rate cut – Does it give cheers to investors
I don’t think it will give much joy to investors. RBI needs to send signal for taking consistent steps that may woo market sentiments.
Will it reduce home loan interest rates by non banking institutions like HDFC and LIC?
Yes provided you have taken floating interest rates
Well analysed and predicted. Banks are normally not passing on this 0.25% to customers. They are appropriating it themselves. IDBI passed on 0.25% reduction on 11 May after about 5 months. Same case with any other banks. In fact, RBI Guv was not convinced to reduce rate. This rate cut would not have actually come if it is not of the prodding/pushing by FM and Mr. Arvind Subramaniam.
would that mean if ther was a 50bps cut, the fii’s would invest in indian market?
They were expecting that Vinay.
Is this rate cuts the mortgage loan?
If it is on floating rate and banks cut the rate, yes it would reduce your mortgage loan