In what seems like a desperate attempt by the Reserve Bank India to increase borrowing amongst Indians, the Central Bank has cut down the repo rate five times in the past eight months. The RBI repo rate was 6.25% in February this year and less than a year later, it now stands at 5.15%. The reasons for these measures are manifold, but the major goal was to boost lending in the economy and encourage people to increase their purchasing power.
Source: the Times of India
The repo rate is the interest rate that the RBI charges banks for the loans it gives them. It increases or reduces the repo rate with the expectation that banks, in turn, will pass it on to customers of personal loan and other loans. However, banks have been somewhat slow in transmitting these rate cuts to their customers. This move had got both the RBI and customers worried. It is important to remember that there is much more than loans at stake here. Let us understand why it further rate cuts can be expected and why it is a good time to take a loan.
Linking of rates to external benchmarks
In October, the RBI made it mandatory for banks to link their retail and MSME loans to external interest rate benchmarks. These external benchmarks are the RBI repo rate, the three month or six month treasury yield published by Financial Benchmarks India Pvt Ltd (FIBIL) or any other benchmark published by FIBIL. These benchmarks will ensure that banks introduce cuts in lending rates. Home, car and personal loan customers are expected to benefit from falling rates.
The global economic slowdown
Due to disputes such as the one between the US and China, and geopolitical tensions such as Brexit, 90% of the world is expected to be affected by an economic slowdown. Central banks around the world are loosening monetary policy to offset the slowdown, and India is no different. Going by this, the government and the RBI are expected to take significant measures to increase purchasing power of the masses and demand in the market.
India’s sluggish GDP growth
Owing to the global slowdown, India’s GDP growth rate projection has only seen a slump. This month, the RBI revised its GDP growth estimate from 6.9% to 6.1%. According to the International Monetary Fund, the effect of the global meltdown will be even more pronounced in India and Brazil. In such a situation, pumping more spending power in the economy becomes very important. The RBI has assured that it will continue with its accommodative (monetary policy loosening) measures.
The holiday opportunity
The winter holiday season is a time of great spending for consumers. A lot of big purchases like vehicles and houses are planned around this time, which means that it is a surge period for the loans sector too. For the RBI, this is a great opportunity to slash rates further so that banks pass them on to customers, thus encouraging greater spending. For those planning purchases already, you can get an idea of loan rates from various loans available on Finserv MARKETS. Their website explains everything including features such as zero collateral and assured flexibility in repayment.
Need to increase liquidity
In such a growth-averse market, the RBI needs to take measures to increase the cash flow and give customers greater purchasing power. Increased spending power will increase demand which in turn will increase business. This is how the growth cycle of the economy gets affected by the central bank loosening its monetary policy. This is exactly how the RBI repo rate affects an end customer. Of course, loans, including personal loans, are a big part of spending power, and it becomes necessary to boost them through reduced interest rates. Thus, you might have plans to take a loan sometime soon. You should check out loans available on Finserv MARKETS, especially if you have a financial emergency. You can get your loan approved within 3 minutes and the amount can be deposited in your account in 24 hours.
Need to increase investments
In an environment where GDP growth projections are falling, businesses need to be encouraged. For growth to take effect, investments in production have to increase. Investments are often funded through loans, and decreasing loan rates are bound to affect investments in a positive way.
Although the widespread economic slowdown is a cause for collective worry, it won’t be wrong to have faith in the RBI and expect better days for the Indian economy soon. The government has been implementing its own measures to increase liquidity and encourage growth. As far as loans are concerned, it is a very good time to take a loan, and it will be for the next six months as the RBI has hinted at a continuation of its policy loosening measures. So, if you have been putting off taking a loan, now is the time to go for it. You can check out the variety of loans available on Finserv MARKETS such as Bajaj Finserv Personal Loan, business loan, travel loan, home loan and even marriage loan.
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