Cut boosts markets' morale: A Balasubramanian

The new Monetary Policy Committee of the Reserve Bank of India (RBI), unanimously, took the bold call of cutting the repo rate by 25 basis points (bps) without too many ifs and buts. There is a clear acknowledgement of falling inflation due to good monsoons.

The government has taken enough measures to control the food inflation. Good sowing of seeds on the back of good monsoon supports the low inflation argument. At the same time, the policy framework has considered the poor capex cycle driven by lower credit offtake.

RBI has also retained its growth expectations at 7.6 per cent of Gross Value Added (GVA) compared to a higher growth expectation due to buoyant outlook of its industrial outlook survey. Therefore, I would assume the rate cut of 25 bps is the need of the hour.

The policy has reiterated the need to maintain real interest rates within a certain band albeit lower from the previous level. I would assume this is largely driven by the way the long-term yield curve has moved in the last few years. The overall interest rate trajectory has been narrowing, signaling lower real interest rates. This move will help further reduce the lending rates in the banking system. This, in turn, will help revive the growth prospects for the economy.

We also see home and auto loan rates coming down and boosting consumer demand around the festival season. I would call it a 'festival bonanza' to boost the morale of the financial market.

A Balasubramanian
Chief Executive Officer, Birla Sun Life Mutual Fund