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The RBI needs to loosen its monetary policy stance: Here’s why

By Finserv MARKETS - Nov 20,2019
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The RBI needs to loosen its monetary policy stance: Here’s why

In the first week of October 2019, the RBI cut its repo rate by 25 basis points. That’s effectively a 0.25% reduction in the rate of interest that the RBI charges when it lends funds to commercial banks. This is the fifth time in a row that the RBI has slashed its lending rates. With this repo rate cut, the rate of interest now stands at 5.15%.

The RBI’s move in this direction reveals that it’s taking an accommodative stance. This is good news for various segments of the economy. The end user, in particular, will find this repo rate cut favorable because it could increase their borrowing power. New and existing borrowers will find that this rate cut could make their repayments easier.

The RBI needs to loosen its monetary policy stance: Here’s why

Source: Trading Economics

The average home loan interest rate will see a drop, making it easier for the common man to avail housing loans. This also means that if you’re interested in taking out a personal loan, available on Finserv MARKETS, now might be a good time to do so.

But that’s not all. This obvious shift toward an accommodative approach is a much-needed move from the RBI. Here’s why.

1. Lower interest rates for the end user:

One of the most important consequences of a repo rate cut and an accommodative stance is the subsequent reduction in the average personal loan and home loan interest rate. This is because any decrease in the repo rate, which is the rate at which a commercial bank borrows money from the RBI, would mean that the bank would have to pay lower interest. This brings down its cost of borrowing. Banks usually tend to pass on this benefit to the end consumer by lowering their own lending rates for loans.

When commercial banks reduce the rates of interest at which they lend money to the end user, consumers have access to more affordable loans, thereby reducing their financial burden to a large extent. Even existing borrowers, whose loans are linked with MCLR (Marginal Cost of Funds based Lending Rate), can enjoy a reduction in their monthly EMIs. On Finserv MARKETS, for instance, you can avail personal loans of up to 25 lakhs with flexible repayment options.

2. Better purchasing power:

By easing the monetary policy, the RBI effectively increases the supply of money and liquidity in the economy. This move will in turn increase the purchasing power of end users and consumers alike by making it cheaper to borrow money. When consumers find themselves with a higher amount of cash in hand, they tend to make more purchases, which in turn plays a huge role in improving the economy of the country.

Better purchasing power also translates to greater financial stability in the long run. This is simply because many end users with surplus cash tend to invest it in one of the many investment opportunities available in the market.

3. Improved industrial development:

Consumers aren’t the only beneficiaries of a repo rate cut and an accommodative monetary policy stance from the RBI. Manufacturing and service industries also have a lot to cheer for. The ultimate reduction in the interest rates makes the economic environment more conducive for borrowing.

Industries can utilize this situation to their advantage by taking out loans from banks to meet their capital expenditures, working capital requirements, and other operating expenditures. By being able to spend more toward capital expenditure like acquisition of new machinery or modernization of existing processes, industries like the automobile sector, service sector, and manufacturing sector can witness a significant increase in their industrial output. This will in turn increase their revenue generating capabilities, thereby leading to development.

4. A boost in economic growth:

The power to change its stance on the monetary policy is one of the most important powers that the RBI possesses. When the growth of the economy gets sluggish or if the GDP growth rate falls below ideal levels, the RBI can jumpstart the economy and revive the growth dynamics by simply loosening its monetary policy stance.

By making money easier to borrow, the RBI allows the economy to see an increase in the inflow of foreign funds into the country. This, in turn, means that economic development is given a boost. Ultimately, an ease in the policy stance would incentivize investments and boost consumption, which are two of the key drivers of economic growth.

With the RBI having implemented another repo rate cut, the time’s ripe for end users to take advantage of this monetary policy. As the benefit of the rate reduction trickles down to the lending rates that commercial banks charge, you’ll find that there’s a corresponding slash in the average personal loan and home loan interest rate. You can now take a personal loan with attractive terms or avail a housing loan from the many options available on Finserv MARKETS. Availing a home loan from Finserv MARKETS offers you a host of benefits. With 100% transparency, no hidden charges, and minimal documentation, obtaining a housing loan from the Finserv MARKETS is a hassle-free and straightforward process. You can even avail custom-made home loans that are tailored to suit your individual requirements.

Also check whether you are eligible for pmay only at Finserv MARKETS.

Finserv MARKETS, a subsidiary of Bajaj Finserv, is a one-stop digital marketplace that has been created for consumers on the go. It offers 500+ financial and lifestyle products, all at one place. At Finserv MARKETS, we understand that every individual is different. And that’s why we have invested in creating a proposition – Offers You Value. A value proposition that ensures you get offers which are tailor made for you. We also offer an amazing product range and unique set of online offers across Loans, Insurance, Investment, Payments and an exclusive EMI store. Be it in helping you achieve your financial life goals or offering you the latest gadgets, we strive to offer what you are looking for. From simple and fast loan application processes to seamless and hassle-free claim-settlements, from no cost EMIs to 4 hours product delivery, we work towards fulfilling all your personal and financial needs . What’s more! Now enjoy the same benefits in just one click with our Finserv MARKETS App.


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