5 takeaways from the RBI Monetary Policy Review

Updated: Tuesday, January 29, 2013, 12:11 [IST]

The RBI announced its monetary policy review today, in which it cut the repo rate and the CRR rate by 25 basis points each. Here is how it affects the common man and a few takeaways from the policy.

1) Lending rates may fall, making home loans and other loans cheaper

The RBI cut repo rate (rates at which it lend to banks) by 25 basis points, accompanied by a cut in the cash reserve ratio by 25 basis points. This is likely to push interest rates in the economy lower, as banks may reduce lending rates on various loans from personal to auto to home loans. This however, depends on banks and their own asset-liabilities, but broadly it signals lower interest rates.

2) Deposit rates may also fall

Those who earn money from fixed income securities, would see their income drop as interest rates on deposits and other fixed income yielding securities may drop.

3) Lock into deposits for longer duration today

It is advisable to lock into fixed income securities immediately, before banks and institutions start dropping their deposit rates. Also, put the money in for a longer duration.

4) GDP growth revised downwards by RBI

The RBI has revised downwards its baseline projection of GDP growth for the current year from 5.8 per cent to 5.5 per cent.
Baseline inflation projection revised downwards
The RBI has revised downwards the baseline WPI inflation projection for March 2013 from 7.5 per cent to 6.8 per cent.

5)Twin deficit risk

The widening of the current account deficit (CAD) to historically high levels, especially in the context of a large fiscal deficit and slowing growth, exposes the economy to the twin deficit risk, the RBI Governor has stated in a release.

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