The Reserve Bank of India today cut its benchmark lending rates by 25 basis points, taking its cumulative repo rate cuts to 135 basis points so far this year. This will be good news for home loan borrowers, especially those who home loans are tied to RBI’s repo rates. With RBI still maintaining an accommodative stance, some analysts expect further rate cuts from the central bank, given broad-based demand weakness in the economy.
“The official policy stance remains accommodative, suggesting that further loosening will follow in the near term. We are pencilling in another 25 bps cut in December,” said Hilan Shah, senior India economist at Capital Economics.
From October 1, all banks have been asked to link new floating rate retail loans, including auto and home loans, to an external benchmark. For new floating auto and home loans, banks have the freedom to decide the spread over the external benchmark.
“We expect some more transmission of rate cuts to borrowers will happen given that the cumulative reduction in repo rate is now 135 basis points during 2019. But that will likely be only a gradual process, given the current weak sentiment and lack of momentum in investments and credit demand from larger corporates in several pockets of the economy,” Siddhartha Sanyal, chief economist and head of research at Bandhan Bank.