Loan rates might get cheaper as the Reserve Bank of India cut interest repo rates by 25 basis points for the third time this year because of falling inflation and slow economic growth. The bank, however, warned that below normal monsoons, which has been forecast by the IMD, rising crude oil prices and a volatile external environment remain as risks to inflation in the days ahead. The benchmark repo (repurchase rate) now stands at 7.25% from 7.50% earlier. This was widely expected since consumer price inflation had fallen to 4.87% in April.
The RBI’s target inflation rate is 6% by January 2016 and the central bank wants to reduce inflation to 4% over the coming couple of years. At the same time, however, economic growth is not picking up fast. While the GDP growth for the March quarter came in at 7.5%, the growth for the whole financial year was 7.3% falling short of the Central Statistics Office’s advance estimates. Moreover, core sector output shrunk by 0.4% in April while the Index of Industrial Production (IIP) rose only 2.1% in March, the slowest in five months.