RBI Monetary Policy: Relief for banking sector, cheaper loans; 5 key takeaways
More liquidity may have its positive impact on bond, equity, residential realty, banking but can affect the inflation and rupee in the international markets.
On account of the Reserve Bank of India's decision to slash Repo Rate by 0.25 per cent to 6.25 per cent, the additional liquidity is expected to have its positive impact on bond, equity, residential realty, banking but can affect the inflation and rupee in the international markets. Speaking on the matter Anindya Banerjee, Deputy Vice President at the Kotak Securities said, "The 0.25 per cent cut in Repo Rate by the RBI would help Indian equity and bond markets to scale further northward though the Indian bond and equity market is already at its highest levels if compared among the emerging economies." However, he expressed concern over the rupee-dollar deviation as the Indian rupee is worst performing currency in the world in 2019.
Expressing more liquidity means more banking transaction via loan markets Rakesh Yadav, CMD at Antriksh India Group said, "The rate cut decision is a long awaited demand from the real estate sector as the move would increase liquidity in the market that would have a positive impact on the Indian housing sector as banks have more money to transact and home buyers can expect more smooth line of credit from the bank in new circumstances."
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— ANI (@ANI) February 7, 2019
Here are the detailed key takeaways from the RBI rate cut decision:
Bond market to get more liquidity as the additional liquidity is expected to rise the investment and Indian bond market is the most preferred destination for Indian investors;
Equity markets to scale further as Indian equity markets have become a blue-eye of the majority of the fund managers operating into the equity linked mutual funds these days;
More liquidity may put pressure on Indian rupee against the US dollar as liquidity leads to rise in purchasing power capacity that may fuel inflation and hence FII's interest to invest may get a hit;
Chances of rise in inflation can't be ignored as more liquidity would fuel demand and purchasing power capacity of the public in general;
Good news for home buyers as rate cut would increase liquidity for banking transactions means rise in home loans, business loans and other utility loans at cheaper rates; and
Banking sector can have a sigh of relief as bad loans have hit their merchandise to a larger extent and any increase in banking transactions would lead to their income that may help curtailing the bad loan pressure on them.