Repo rate cut to provide long-awaited relief on interest rates, say experts

The repo rate cut by 25 basis points by the monetary policy committee (MPC) of RBI announced Friday will give a long-awaited relief on interest rates and also be supportive of economic growth, according to experts.

Repo rate is the interest rate at which the RBI lends money to commercial banks.

Chief economist of Crisil Limited Dharmakirti Joshi said that as expected, the MPC of the central bank cut rates for the first time since May 2020.

The repo rate has been cut by 25 basis points which now stands at 6.25%.

Joshi said that the recent easing in consumer price index (CPI) inflation and the need to remain supportive of economic growth has moved the RBI to act in this regard.

However, the MPC maintained the policy stance at 'neutral', which gives flexibility to remain data dependent and respond to exigencies, Joshi said.

The MPC moves in the future will depend more on domestic inflation, he said.

"Elevated rates have impacted India's GDP growth, while the budget for the next financial year is mildly supportive of growth, while continuing on the path of fiscal consolidation," he said.

Joshi expressed hope that the MPC would cut the repo rate to another 75 basis points to 100 basis points in the next financial year.

Chief Investment Officer of Axis Securities PMS Naveen Kulkarni said, "The RBI reversed the interest rate cycle by announcing a rate cut of 25 basis points. This was largely anticipated."

The GDP growth for the current fiscal has been revised downwards to 6.4% from 6.6%, he said.

"And for the next fiscal, the GDP is expected to be at 6.7%. We could see another rate cut of 25 basis points in the forthcoming meetings of the MPC," he said.