In what was a surprising move the Reserve Bank of India (RBI) today cut repo rates or rates at which the RBI lends money to banks. The rates were cut from 8 per cent to 7.75 per cent.
This could prompt banks to cut their lending rates since costs for banks reduce dramatically. One reason for that is demand for credit has been sluggish and the 25 basis points cut could be passed on in view of the lower credit demand. Much would depend on how banks look at their own asset liability mismatch.
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The RBI has also said it could cut interest rates further if inflation continues to ease, and it would also monitor the government's progress on fiscal consolidation
Analysts say that Deposit rates could also fall in the coming days as credit growth remains muted. Individuals who are looking to take home loans, personal loans and other form of loans should wait for some more time before interest rate falls.
There is a likelihood that banks could reduce interest rates by at least another 25 basis points believe most analysts. Between now and June that could translate into a decent gain of 50 basis points for those seeking loans. So, it would be prudent to wait for some more time as a probability of another interest rate cut is most likely.