Car, home loans to get cheaper soon, says Rajan

Reserve Bank of India Governor Raghuram Rajan said that the rate cut announced in the monetary policy on Tuesday, the first cut in six months, along with the recent adoption of Marginal Cost of Lending Rate (MCLR) calculations by banks will help bring the borrowing cost in the country down significantly. 

Rajan, while speaking to the media after the first bi-monthly monetary policy announcement of FY17, said that the apex bank's focus will continue to remain on the transmission of these rate cuts.

"We have cut 150 bps since the beginning of the accommodative cycle. Our attention will be on transmission," he said.

"The introduction of MCLR since April 1 will help" in bringing the borrowing cost down, Rajan added. 

Justifying the 25 bps rate cut when many stakeholders in the industry and the market were expecting a 50 bps cut in the repo rate, Rajan said, "We think rate cut is sensible given economic condition right now." 

Because of MCLR we already have a rate cut of 25-50 bps before the policy announcement; both these composite measures will add up, he said. 

Saying that banks' main reason for refraining from cutting lending rates is tight liquidity. To address this concern, Rajan said, "we have also given the banks enough liquidity so that they don't have liquidity tightness. They will transmit more; borrowing cost will come down.