Reserve Bank of India Lowers Repo Rate
The Reserve Bank of India (RBI) has lowered the repo rate by 25 basis points to 5.25 per cent. This move was widely anticipated by markets and is seen as a supportive step amid easing inflation and global uncertainties.
Reason Behind the Rate Cut
According to Dharmakirti Joshi, Chief Economist at CRISIL Limited, the reduction was expected given the inflation trajectory. "It was as expected because the growth was high, but the inflation was lower than their 2 to 6 per cent range. And I think they also expect inflation to be lower in the third quarter of this year, and also the future inflation projections have also been reduced," Joshi added.
Impact on Borrowers and Consumers
The rate cut is expected to support borrowers as lending rates ease. Joshi further added, "There are some signs of urban consumption strengthening a little bit. And the rate cut will mean that the eventual lending rates will also come down. They are gradually coming down and that does support consumption." The consumption is also getting support from income tax rate cuts and GST rate cuts.
Investment Outlook
On the investment outlook, Joshi remained cautiously optimistic. "Lower interest rate will also encourage more borrowings going ahead," he said, while noting that uncertainties still influence private investment decisions.
Market Reaction
Market reactions remained muted, with Sneha Poddar, VP Research, Motilal Oswal Financial Services, noting that the cut was already discounted. "25 basis points rate cut that the RBI has announced was largely factored in by the market, and that is the reason why we haven’t seen any knee-jerk reaction by the Nifty," she said.
Sectors That Will Benefit
Calling it "almost the last leg of the rate cut," she added that "Auto and real estate will benefit the most because the loan rates will come down," while sectors like consumer discretionary, tourism, jewellery, FMCG, and NBFCs would also see gains as their cost of credit will come down.
Reaction from Experts
Atul Monga, CEO & Co-Founder, BASIC Home Loan, said, "As far as potential homebuyers are concerned, improved loan affordability can expedite purchase decisions, this is especially relevant for those falling under the mid-income segment. I expect this move to revive the housing demand and improve consumer confidence." Manoranjan Sharma, Chief Economist at Infomerics Ratings, highlighted that the rate cut aligned with expectations amid historically low inflation.
Conclusion
The RBI’s decision to lower the repo rate is seen as a timely support measure amid global volatility, benign inflation, and signs of strengthening domestic demand. With the central bank projecting GDP growth at 7.3 per cent for the current fiscal 2025-26, economists broadly view the rate cut as a positive step. The rate cut is expected to support borrowers, consumers, and businesses, and will likely have a positive impact on the overall economy.
