EMIs to fall? FM‘s ‘wish‘ may give hope to borrowers

NEW DELHI: Finance minister has a “wish” which, if fulfilled, could bring cheers for those paying equated monthly instalments or EMIs.

Ahead of the August monetary policy meeting of the Reserve Bank of India (), Sitharaman has hinted towards another possible rate rut from the central bank.

“I’ll honestly wish (for a) rate cut … and yes, a significant rate cut would do a lot of good for the country,” Sitharaman told The Economic Times in an interview published on Monday.

The finance minister says CAG’s comments on fiscal deficit are being looked into seriously.

When the RBI cuts rates, banks are expected to pass on the benefit to consumers and reduce interest rates on home, auto, personal or other loans which may result in lower EMIs.

“I am conscious that the RBI has taken a very accommodative posture and done nearly … 75 basis points (bps) (rate cuts). We will now have to look at that route with a lot more hope. The industry also feels there is space for it,” the finance minister added.

The Reserve Bank has so far reduced key rates thrice in a row, 25 bps each time, this year.

Usually, the country‘s largest lender, State Bank of India (SBI), starts the process of rate cut with other banks following suit.

Analysts have given a mixed response to Sitharaman‘s “wish” as they felt that the central bank should wait for previous cuts to take effect before considering any rate change.

RBI governor Shaktikanta Das also highlighted the lack of transmission and said future cuts depend on data points, particularly inflation.

RBI governor Shaktikanta Das told TOI recently that in the past six months the central bank has cut interest rates effectively by 100 basis points (bps) (1 percentage point). However, only 21 bps cut has been passed on to the new borrowers. Where has the remaining 79 bps cut gone? Are banks making a neat profit by not passing on the lower interest rates?

Das told TOI that in the past six months the central bank has cut interest rates effectively by 100 bps (1 percentage point). However, only 21 bps cut has been passed on to the new borrowers.

“The Monetary Policy Committee has reduced the policy rate by 75 bps over the last six months. The way markets operate, revision in monetary policy stance from neutral to accommodative itself is seen by some as a 25 bps cut. Effectively, there has been a 100 bps cut in the policy rate. Since the rate cuts began, around 21 bps has been passed on to new borrowers by end of April 2019 and thereafter the momentum has slowed,” the RBI governor stated.

Finance minister Sitharaman also commented on reports of the finance ministry reviewing overseas borrowings plan. “I am not doing any review. I have not been asked by anybody to do a review,” she stated.
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