Will loans become cheaper? First MPC meet under new RBI Governor to decide

Chennai: After big ticket income tax rebates announced by Finance Minister Piyush Goyal in Budget 2019 speech, all eyes are on the first RBI Monetary Policy Committee (MPC) meet under Shaktikanta Das scheduled from 5 to 7 February.

The Central Bank’s stance on the Repo rate will decide whether the common man’s home and car loans will get cheaper or costlier.

What is Repo rate?
Repo rate (Repurchase Rate) is the rate at which RBI lends money to commercial banks in the event of any shortfall of funds to meet their day-to-day obligations. Repo rate is used by monetary authorities to control inflation. The Repo rate cut allows banks to reduce interest rates on loans offered to customers, thus effecting low EMIs on home loan, car loan, personal loans and so on.
RBI’s stance

The RBI’s Monetary Policy Committee is likely to change its policy stance to neutral in its meeting this week on low inflation footprint but would refrain from cutting interest rates (REPO) due to fiscal challenges and rising crude oil prices, according to PTI reports.

Former Finance Ministry top bureaucrat, Shaktikanta Das, was appointed the governor of the central bank in December after Urjit Patel’s exit, arguably, due to many contentious issues. The repo rate presently is 6.5 per cent, and former RBI governor Patel had signaled the possibility of a rate cut if inflation continued to plunge.

However, with the Budget deviating from the fiscal consolidation path, the RBI may only choose to change the stance from “calibrated tightening” to “neutral”, say experts.
Experts Speak

Bank of Baroda Chief Economist Sameer Narang observed that the MPC may change its monetary stance to ‘neutral’ on 7 February.

He said, “Consumer price index (CPI) inflation is expected to remain below the RBI’s target of 4 per cent in 2018-19.This gives RBI a room to change its monetary policy stance. However, the elevated level of core components such as health, education, household, and personal goods suggests that room to cut rates is limited for now.”

Vice Chairman and Managing Director of Magma Fincorp, Sanjay Chamria believes that Finance Minister Piyush Goyal in his Budget speech has “set the stage for a rate cut by the RBI”. In its December monetary policy review, the RBI had kept interest rates unchanged but held out a promise to cut them if the upside risks to the inflation do not materialise.

Having raised rates twice this fiscal, RBI retained its ‘calibrated tightening’ policy stance. The government has mandated the RBI CPI inflation at 4 per cent (+,- 2 per cent). Continued decline in food prices pulled down retail inflation to an 18-month low of 2.19 per cent in December 2018.

Meanwhile, Finance Minister Piyush Goyal is scheduled to address customary post Budget meeting of the central board of Reserve Bank of India on February 9 and highlight the key points of interim Budget.

NT Bureau