The rate cut is in line with the general expectation of the economy of doing well, albeit slowly, but steadily. The recent reports of industrial activity picking up in April, are an encouraging signal for the RBI to cut the repo rate. The industry was hoping that the cut could be to the tune of 50 basis points, but nonetheless 25 basis cut is also a very positive direction in the confidence building measure. Corporates could take advantage of cheaper money and onvest in businesses. It should also help Indian exporters’ good become more competitive in international markets. Higher exports, coupled with more profits, could also help increase corporate tax revenue and, thus ease pressure on fiscal deficit. It is also expected that more inflows to infrastructure sector will help investments, employment and an overall growth in this much talked about sector.
The lowering of the inflation to 4.27% – the headline inflation has evolved along the projected path and is likely to have a positive impact on economy.
Banks have started passing through the previous rate cuts in their lending rates. This gives hope that today’s cut will also be passed on to the retail consumers in form of lower EMIs on housing and auto loans resulting in enhanced purchasing power in their hands.
However, one point to be concerned is news / forecast of delayed monsoon, which may hold back RBI of further cuts this entire year. Delayed monsoon could also have an adverse impact on inflation, though it is too early to comment.
Notwithstanding this, today’s move is welcome and IMC congratulates the RBI on this move – the third cut in this year.