{"id":52066,"date":"2025-02-07T16:26:18","date_gmt":"2025-02-07T10:56:18","guid":{"rendered":"https:\/\/www.equentis.com\/blog\/?p=52066"},"modified":"2025-02-07T16:26:20","modified_gmt":"2025-02-07T10:56:20","slug":"rbi-slashes-repo-rate-by-25-bps-after-5-years-realty-auto-surge-banking-stocks-drop","status":"publish","type":"post","link":"https:\/\/www.equentis.com\/blog\/rbi-slashes-repo-rate-by-25-bps-after-5-years-realty-auto-surge-banking-stocks-drop\/","title":{"rendered":"RBI Slashes Repo Rate by 25 bps After 5 Years; Realty & Auto Surge, Banking Stocks Drop"},"content":{"rendered":"
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In a significant move, the Reserve Bank of India (RBI) has reduced the repo rate by 25 basis points, bringing it down to 6.25%. This is the first rate cut in almost five years and aims to boost the economy as growth slows. <\/p>\n\n\n\n

This is the first rate cut since May 2020. Previously, the RBI had kept the repo rate unchanged at 6.5% for eleven straight meetings. In its December policy review, the MPC voted 5-1 to hold rates<\/a>, focusing on controlling inflation<\/a> while ensuring economic stability. Economic Times<\/a><\/p>\n\n\n\n

Hopes for a rate cut grew after the Union Budget<\/a> for FY26, which reduced the tax<\/a> burden on individuals to boost spending. Additionally, the budget<\/a> maintained the capital expenditure target for the next fiscal year at nearly the same level as last year\u2019s budgeted amount. However, it has been revised this year. Economic Times<\/a><\/p>\n\n\n\n

Market Reaction: Auto & Realty Stocks Gain, Banks Slip<\/strong><\/h2>\n\n\n\n

After the announcement, auto and real estate stocks<\/a> jumped by up to 3%, while banking and financial stocks declined by nearly 1.5%. Auto stocks like Apollo Tyres, Ashok Leyland<\/a>, M&M, and Samvardhana Motherson International gained up to 3%. Lodha, Godrej Properties, and Oberoi Realty rose between 1% and 2.6% in the real estate sector.<\/p>\n\n\n\n

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Source: NSE<\/a><\/figcaption><\/figure>\n\n\n\n

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Meanwhile, banking and financial stocks declined, with Bajaj Finance, SBI, Axis Bank, and ICICI Bank among the top losers from the Nifty<\/a> Financial index, falling up to 1.2%.<\/p>\n\n\n\n

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Source: <\/strong>NSE<\/strong><\/a><\/figcaption><\/figure>\n\n\n\n

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Reasons Behind the Repo Rate Cut<\/strong><\/h2>\n\n\n\n

The Monetary Policy Committee (MPC) unanimously decided to cut the rate. RBI Governor Sanjay Malhotra explained that while growth is improving, it is still lower than last year. With inflation under control, the central bank<\/a> saw an opportunity to lower rates to support the economy while maintaining price stability.<\/p>\n\n\n\n

livemint.com<\/a><\/p>\n\n\n\n

RBI\u2019s Policy Moves: CRR Cut and Growth Projections<\/strong><\/h3>\n\n\n\n
CRR Reduction to Boost Liquidity<\/strong><\/td>-In its December policy review, the RBI kept the repo rate unchanged.
-It reduced the Cash Reserve Ratio (CRR) by 50 basis points, lowering it to 4%.
-This step aims to improve liquidity in the banking system and support credit growth.<\/td><\/tr>
Growth Projections for FY25<\/strong><\/td>-The RBI has projected India\u2019s real GDP growth to be 7.2% for FY 2024-25.
-In contrast, the Economic Survey estimates a lower growth of 6.4%, aligning with NSO projections.<\/td><\/tr>
RBI\u2019s Growth Outlook for FY26<\/strong><\/td>-The Monetary Policy Committee (MPC) expects India\u2019s GDP to grow 6.7% in FY26.-
The RBI projects India’s GDP growth for FY26 at 6.7% in Q1, rising to 7% in Q2 and then moderating to 6.5% in Q3 and Q4.\u00a0
-The December 2024 forecast was revised downward, reflecting evolving economic conditions.<\/td><\/tr><\/tbody><\/table>
Source: livemint.com<\/a>\/Economic Times<\/a><\/figcaption><\/figure>\n\n\n\n

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Understanding the Repo Rate<\/strong><\/h2>\n\n\n\n

The RBI\u2019s repo rate cut was much awaited. Let\u2019s understand the repo rate and why it matters. It\u2019s the interest rate at which the RBI lends money to banks. When the repo rate is lowered, borrowing becomes cheaper for banks, allowing them to offer lower interest rates on loans. This helps boost spending and investment, supporting economic growth.<\/p>\n\n\n\n

Know More:  <\/strong>SEBI <\/b><\/a>Registered investment advisory |  Stock investment advisory<\/a><\/strong><\/pre>\n\n\n\n
Current Economic Indicators<\/strong><\/h2>\n\n\n\n
India’s economic growth has been challenging. The GDP growth rate fell to 5.4% in the September quarter, the lowest in two years. Projections for the current fiscal year have been revised to 6.4%, a decline from the 8.2% growth observed in 2023-24. High price pressures, stagnant wages, weak consumption, and recent corporate earnings disappointments have contributed to this slowdown.<\/p>\n\n\n\n
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Inflation Trends<\/strong><\/h2>\n\n\n\n
Despite retail inflation remaining above the RBI’s target, there has been a declining trend. It has eased to a four-month low, and expectations are that it will continue to decrease, barring any unexpected supply shocks. This downward trend in inflation has provided the RBI with the flexibility to reduce the repo rate to support growth. reuters.com<\/a><\/p>\n\n\n\n
Impact on Borrowers and Investors<\/strong><\/h2>\n\n\n\n
For retail borrowers with floating-rate loans, this rate cut is welcome news. As banks pass on the benefit of the lower repo rate, equated monthly installments (EMIs) are expected to decrease, making loans more affordable. Borrowers also have the option to keep their EMIs constant while reducing the tenure of their loans. livemint.com<\/a><\/p>\n\n\n\n
On the flip side, fixed deposit investors might see a reduction in interest rates offered by banks. With the repo rate cut, banks may lower the rates on fixed deposits, affecting returns for investors seeking safe investment avenues.<\/p>\n\n\n\n
Market Reactions<\/strong><\/h2>\n\n\n\n
The stock markets responded positively to the rate cut. Sectors sensitive to interest rates, such as financials, automobiles, and real estate, saw gains. The Nifty 50<\/a> index increased by 0.35% to 23,684.2, while the BSE Sensex<\/a> gained 0.28% to 78,274.35. However, the rupee continued to struggle, weakening slightly to 87.47 per dollar. <\/p>\n\n\n\n
Looking Ahead<\/strong><\/h2>\n\n\n\n
The rate cut boosts the economy, but the RBI is cautious. It follows a balanced regulation approach and lets market forces decide the exchange rate, stepping in only to control extreme fluctuations.<\/p>\n\n\n\n
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Conclusion<\/strong><\/p>\n\n\n\n
The RBI’s decision to cut the repo rate after a prolonged period reflects its commitment to supporting economic growth while keeping inflation in check. As this policy unfolds, stakeholders will keenly observe its impact on various sectors of the economy.<\/p>\n\n\n
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