The reduction repo rate- the rate at which RBI lends – from 7.25% has come as a big surprise to the market which had expected only a 25 bps cut.
MUMBAI: Home loans will soon become cheaper with the Reserve Bank of India announcing a 50 basis points reduction in policy rate to 6.75% — a move that will compel most banks to soften lending rates. The reduction repo rate- the rate at which RBI lends to banks – from 7.25% has come as a big surprise to the market which had expected only a 25 basis point cut.
Banks, however, may not lower their lending rate by as much as half a point.
“Borrowers would stand to benefit. We can expect the transmission will happen this quarter,” said P Srinivas, MD & CEO of United Bank of India speaking to ET. Following this reduction, the RBI has lowered policy rate by 1.25% since the beginning of this fiscal year.
Speaking to ET, deputy managing director of IDBI Bank B K Batra said, “It will give a very good push in improving the sentiment. It will nudge banks to take action.”
Announcing the half yearly policy, the RBI said, “Reserve Bank’s stance will continue to be accommodative, the focus of monetary action for the near term will shift to working with the Government to ensure that impediments to banks passing on the bulk of the cumulative 125 basis points cut in the policy rate are removed. The Reserve Bank will continue to be vigilant for signs that monetary policy adjustments are needed to keep the economy on the target disinflationary path.”
Country’s largest bank, State Bank of India has pegged its base rate at 9.70% while private sector bank lender HDFC Bank has pegged it floor lending rate at 9.35%. Since home loans are linked to base rate, a reduction in base rate will benefit borrowers. Following the cut in rates, the benchmark yield in the government bond market fell to 7.76% from Monday’s close to 7.72%.