The rate cut by the Reserve Bank of India (RBI) will help banks’ to address liquidity issues and at the same time, low cost of funds is likely to boost consumption, suggest experts

The Monetary Policy Committee (MPC), on expected lines, changed its stance to ‘neutral’ from ‘calibrated tightening’ on February 7 in its sixth bi-monthly monetary policy review meeting but what came as a surprise was the repo rate cut of 25 basis points (bps).

The rate cut by the Reserve Bank of India (RBI) will help banks to address liquidity issues and at the same time, low cost of funds is likely to boost consumption, suggest experts. Fall in the cost of funds will also aid lending, so it is positive for banks as well as NBFCs.

“A rate cut of 25 basis points is an act of fine balance between maintaining real income and boosting economic growth. Benign inflation trajectory and low private capex were key enablers for a rate cut, which is good for mid and small-cap companies,” Dharmesh Kant, Head – Retail Research, IndiaNivesh told Moneycontrol.