EMI will be cheaper, will you get a new loan at low interest? RBI can make a big announcement this week

New Delhi: The Reserve Bank of India (RBI) may once again cut the key policy rate repo by up to 0.25 percent in its monetary review meeting this week. Due to the reduction in inflation, the central bank has the scope to cut interest rates. After the announcement of retaliatory customs duty by the US, challenges have arisen before the global economy. In such a situation, there is a need to encourage economic growth on the domestic front as well.

In February, the RBI’s Monetary Policy Committee (MPC) headed by Governor Sanjay Malhotra reduced the repo rate by 0.25 percent to 6.25 percent. This was the first cut in the repo rate after May 2020 and the first amendment after two and a half years. The 54th meeting of the MPC will begin on April 7. The results of the meeting will be announced on April 9.

Apart from the RBI governor, the MPC consists of two senior officials of the central bank and three government appointees. The Reserve Bank of India (RBI) had kept the repo rate (short-term lending rate) unchanged at 6.5 per cent since February 2023. The last time the RBI reduced the repo rate was during the time of Kovid (May 2020) and after that it was gradually increased to 6.5 percent.

Bank of Baroda (BOB) Chief Economist Madan Sabnavis said that the policy to be announced this week will come at a time when many things are happening all over the world and within the economy. He said that the tariffs imposed by the US will have some impact on growth prospects and currency, which the MPC will have to consider beyond the general assessment of the state of the economy.

Sabnavis said, however, it seems that with inflation prospects softening and liquidity stabilizing, the repo rate may be cut by 0.25 per cent this time. It is also expected that the central bank will make its stance more liberal, which will mean more rate cuts during this year.

US President Donald Trump on April 2 imposed retaliatory tariffs ranging from 11 to 49 percent on about 60 countries, including India and China, which will come into effect from April 9. According to experts, there are both challenges and opportunities for India as many of its competitors in exports such as China, Vietnam, Bangladesh, Cambodia and Thailand are facing high tariffs. Rating agency ICRA also expects the MPC to cut the repo rate by a quarter percent while maintaining a neutral stance in its upcoming meeting. ICRA said, we do not expect any major announcement like a cut in the cash reserve ratio (CRR) in the MPC meeting.

Meanwhile, industry body Assocham has suggested that the MPC should adopt a wait and watch approach in the upcoming monetary policy instead of cutting rates in the current situation. Assocham President Sanjay Nair said, RBI has recently increased liquidity in the market through various measures. We have to be patient till these measures have an impact on the increase in capital expenditure and consumption. We believe that RBI will keep the repo rate stable during this policy cycle.

He said that despite the challenges on the external front, the Indian economy is expected to remain in a strong position in the new financial year. Gross domestic product (GDP) growth of around 6.7 per cent for FY 2025-26 is a reasonable expectation, while retail inflation is likely to remain under control. Retail inflation has come down to a seven-month low of 3.61 per cent in February, mainly due to reduction in prices of vegetables, eggs and other protein-rich items.

Consumer Price Index based retail inflation was 4.26 per cent in January and 5.09 per cent in February 2024. Pradeep Aggarwal, Founder and Chairman, Signature Global (India) Ltd, said that the central bank is expected to cut the repo rate by a quarter per cent to six per cent to boost consumption and accelerate economic growth.

He said, a reduction in the policy rate acts as a catalyst in borrowing, which encourages more people to invest to buy a house, thereby increasing the demand in the housing market. However, Aggarwal said that the actual impact of this rate cut will largely depend on how effectively and quickly commercial banks transmit the RBI’s policy decision to the customers.