Raghuram Rajan surprises the Indian market with a rate cut!

In a surprise move recently, the country’s most-dedicated inflation warrior, Raghuram Rajan has announced a cut in the Repo Rate – the rate at which RBI lends to other banks, by about 0.25%. He went on to signal that inflation is slowly dying and that the economy needs a push to propel it towards the path of growth such has not been witnessed in the last few years.

The rates have been cut outside the regular monetary cycle which goes on to highlight Rajan’s reputation of surprising markets. The falling rate will boost the bond market, debt funds will bounce higher, and stock-markets will see an upward trend as well as disinvestment prospects will improve.

The government’s burden of interest will ease a bit which will go ahead and boost public investment. Banks will not get to raise cheaper tier-2 capital. However, Home loans and auto loan interest rates will increase. The only people to virtually lose are the depositors who will witness a lowering of interest rate, but when compared with the inflation rate, lower interest rates teamed up with lower inflation rate are bound to profit the depositor more rather than just higher interest rates.

The key right now is to grab as many tax-fee bonds as possible at a 7% plus yield-to-maturity rate. Invest in debt funds and more in equity. Real Estate investment, as per experts is to be avoided unless for actual use.

The repo rate cut has signaled over-all well-being of the Indian economy irrespective of the current state of the world economy.