INTEREST RATE CUT AND AFTER

RBI Governor Raghuram Rajan has at last gone for an interest rate cut to boost the economy with a monetary policy despite of amid differences with Government of India.This difference has been noticed for quite long time. Central Government believed that RBI is always against the structural changes and that had initiated to form a Financial Sector Development Council long back during the regime of Pranab Mukherjee as finance minister.The differences became gradually wider and it came with an outburst with the comment of RBI Governor after declaring the recent monetary policy. Rajan said " The RBI is not a cheer leader. Our job is to give people confidence in the value of the Rupee, in the prospect of inflation, and having established that confidence,create a long term framework for good decision to be made".

Off course Central Government has not given much importance to his comment. But, RBI had to bow down ultimately to the request from different sectors and segment of the country to lower the interest rate. So, the recent lowering of Repo rate of 25 bsp from 7.50 to 7.25 has been the cause of stable and low inflation since beginning of the fiscal year. The Wholesale Price Index is even lower at 2.65 percent since long time. The cost of food product is stable and is slower from April of the year. The monsoon has been projected good and harvest of food products is emphasized to be better in coming season which would make a direct impact on the inflation and RBI has stated that there is expectation for further cuts in interest rates due to expectation of good monsoon. Although GOI is expecting that inflation may rise little at January 2016 up to 6.00 percent.

Now, the Repo rate is the rate at which public sector Banks borrow fund from RBI by giving adequate collateral security in the form of Government bonds and when they return back the fund they take back the bonds.Now , once Repo rate is lowered all public sector Banks are obviously to to lower their interest rates. Interest rates are generally regulated with base rate of every Bank so lowering of base rate will automatically ease the interest rate for borrowers to repay their loans. Banks at the pinnacle of the country like SBI, AXIS Bank etc have already declared to lower there base rates with immediate effect.So, the Home loan. Car loan etc will be cheaper for the buyers of the country.

The US monetary Policy has also become stable and inflow of FDI ( Foreign Direct Investment) is definitely going to increase and country's balance of trade will squared up and deficit will be reduced .Rupee may be upgraded against USD in conversion as well as buying and selling. Cost of  retail products like food and essentials will go down. So there will be a win win situation for the economy is predicted.