Strategic Decision: Repo rates reduction will help maintain demand

Reserve Bank of India has provided great relief to the market with its decision to cut the repo rates for the second time in succession by 25 basis points. Now, the repo rate will be at 6.0 percent, as it had crossed 6.50 percent prior to February. This will allow the banks to avail loans at lower costs from RBI, and it will impact retail loan holders. With the repo rates cut for the second successive time, the onus would be on the banks, even more, to pass on this benefit to their consumers, and because of this, there could be some lowering of the EMI for home loans as well as personal loans.

The repo rate reduction is also being contemplated as a strategic move in the face of US President Donald Trump's tariff war. It is the biggest motive for this that the fear of global recession has intensified because of Trump's tariff war. It is hoped this will result in making Indian products costly in America and it is possible that their consumption may fall. In such a situation, Indian companies may get a shock.

But if some of the reduction in the American market can be compensated by Indian consumers, then it will not only be a relief for the companies, but it will also provide stability to the market. If the loan rates come down due to the reduction in repo rates, then the demand for goods in the Indian market will increase. This is why it is being considered a timely and appropriate decision.

In a conversation with Amar Ujala, Economic affairs expert Dr. Nagendra Kumar Sharma said that inflation in the retail market has been under control for some time. The prices of vegetables, fruits, and grains have been controlled. This has brought the retail inflation rate under control. Since then it has been speculated that RBI can cut the repo rates. As expected, RBI has cut repo rates twice in a row, first in February and now in April.

Reduction in interest rates will help increase consumption in the market. Reduction in EMI will help customers save themselves from the impact of inflation and invest the savings in the consumption of other goods. This step can prove beneficial to increase domestic demand amid global uncertainty.