The Reserve Bank of India (RBI) lowered its benchmark policy rate by 35 basis points (0.35%) to 5.4%
This simply means that interest rates on Fixed Deposits and and on loans are going to be lower.
However it will take time as "transmission" of rates takes time. That is banks take time to reduce rates ( especially on loans) as they continue to pay higher interest rates on the existing Fixed Deposits. Only when such deposits come for renewal or new fixed deposits are made they can offer lower rates.
The RBI further reduced the risk weight on consumer loans from 125% to 100%. This means that consumer loans ( Car, Washing Machine, Refrigerator, TV etc etc). will become cheaper i.e. EMIs on such loans shall be lower.
RBI is focusing on growth and hence reducing interest rates, in the hope that as EMIs get lower there shall be in increase in demand which will lead to growth.
Traditionally there has always been a gap of such moves - anywhere between 3 months to a year. Many analysts believe that the reduction in interest rates alone is not enough to increase growth in the economy. Revival of sentiments is important as well.
As of now even though there is ample money in the economy, banks are unwilling to lend fearing that they may not be able to recover the monies, especially from NBFCs - many of which are under stress.
RBI governor explicitly made a statement that large NBFCs shall not be allowed to fail.
Monsoon if it is normal ( we will know in a months time) then it will also help in increase in demand.
The other factor is oil. Oil prices are currently down - primarily due to trade war fears (between US and China).
If all of these factors... remain favourable then coming months ( 3 months to a year) growth in Indian economy should be better.
Markets are a forward discounting mechanism - that is they will move up in anticipation of better growth of the Indian economy.
As of now that is not the case.... but let's hope for the best.
This simply means that interest rates on Fixed Deposits and and on loans are going to be lower.
However it will take time as "transmission" of rates takes time. That is banks take time to reduce rates ( especially on loans) as they continue to pay higher interest rates on the existing Fixed Deposits. Only when such deposits come for renewal or new fixed deposits are made they can offer lower rates.
The RBI further reduced the risk weight on consumer loans from 125% to 100%. This means that consumer loans ( Car, Washing Machine, Refrigerator, TV etc etc). will become cheaper i.e. EMIs on such loans shall be lower.
RBI is focusing on growth and hence reducing interest rates, in the hope that as EMIs get lower there shall be in increase in demand which will lead to growth.
Traditionally there has always been a gap of such moves - anywhere between 3 months to a year. Many analysts believe that the reduction in interest rates alone is not enough to increase growth in the economy. Revival of sentiments is important as well.
As of now even though there is ample money in the economy, banks are unwilling to lend fearing that they may not be able to recover the monies, especially from NBFCs - many of which are under stress.
RBI governor explicitly made a statement that large NBFCs shall not be allowed to fail.
Monsoon if it is normal ( we will know in a months time) then it will also help in increase in demand.
The other factor is oil. Oil prices are currently down - primarily due to trade war fears (between US and China).
If all of these factors... remain favourable then coming months ( 3 months to a year) growth in Indian economy should be better.
INDIA'S GDP GROWTH RATE
Markets are a forward discounting mechanism - that is they will move up in anticipation of better growth of the Indian economy.
As of now that is not the case.... but let's hope for the best.
