With the US Federal Reserve cutting interest rates, all eyes in India are now on the Reserve Bank of India (RBI). Many people are wondering if this move by the Fed will push the RBI to lower its own interest rates. This could bring some relief to borrowers as it would make loans cheaper. However, financial experts are divided on whether the repo rate—the rate at which RBI lends money to commercial banks—will actually be reduced anytime soon.
The repo rate has been steady at 6.50% since February 2023, when the RBI last made changes. The next big moment will be the Monetary Policy Committee (MPC) meeting, scheduled from 7th to 9th October, chaired by RBI Governor Shaktikanta Das. During this meeting, the fate of interest rates will be decided.
Why Borrowers Are Hoping for Lower Loan Costs
If the RBI decides to cut the repo rate, this would directly impact the cost of loans. Loans like home loans, car loans, and personal loans would become cheaper, resulting in lower EMI payments for borrowers. More people would have extra cash in hand to invest, potentially boosting market activity. This is why many are eagerly waiting for a positive decision from the RBI that could help the common man as well as the broader economy.
Global Pressure and Challenges for the RBI
The US Fed’s decision to reduce interest rates comes with a message that further cuts could continue. This puts indirect pressure on other central banks, including the RBI, to make similar moves. If India does not reduce its rates, it might face increased economic challenges, as higher interest rates in India compared to global markets could affect investment inflows and overall economic growth.
However, Governor Shaktikanta Das has previously indicated that there might not be an immediate reduction in interest rates. In a recent public appearance, he mentioned that decisions on rate cuts would be based on long-term inflation data and not just monthly figures.
Inflation Still Plays a Key Role in Decision Making
For those hoping for a reduction in the repo rate, inflation plays a critical role. India’s retail inflation rate has been relatively stable, staying around 3.65% in August, compared to 3.6% in July. This is within the RBI’s target range of 2% to 6%. Since inflation has been under control, some experts believe the RBI might consider easing the rates.
However, as long as inflation remains within the RBI’s comfort zone, the central bank may hold off on cutting rates. After all, inflation control is one of the primary reasons the RBI uses its repo rate tool.
What Could Happen in the October MPC Meeting?
There is hope that the MPC meeting in October could bring good news for borrowers, but it is not a guarantee. The RBI will carefully consider a range of factors, including inflation, global economic conditions, and the overall health of the Indian economy.
At present, the RBI seems cautious about any rapid moves. Still, if inflation remains manageable and the global economy continues to push for lower rates, the RBI may decide to cut the repo rate—bringing relief to millions of Indian borrowers.
The possibility of cheaper loans is a topic that will continue to dominate discussions until the RBI makes its decision next month. Whether or not loans will become more affordable depends on multiple factors, but the optimism among borrowers is growing as they await the central bank’s next move.
