RBI rate cut and my take
RBI Governor started the out of turn meeting with Mahatma Gandhi quote “We may stumble and fall, but shall rise again…” to address the concern of liquidity.
Some of the salient features are:
- *Repo rate cut by 40 bps to 4 percent, Reverse Repo gets adjusted to 3.35 percent
- GDP growth outlook for FY21 seen in negative territory, some pick up seen in H2FY21
- *Moratorium extension for another three months – total six months
- Accumulated interest for moratorium period can be converted into a term loan, doesn’t have to be repaid immediately after moratorium ends.
- Group exposure limit increased to 30 percent from 25 percent
Already the SBI 1-3 years FD interest rates are at 5.5 per cent, with today’s rate cut in Repo, further interest rates cuts are in the offing.
So, what happens to economy when interest rates fall continuously.
It clearly shows when the interest rates fall, it helps economy to grow which in turn helps company to post decent profits, the by-product market to move up. Table will help you to understand in detail.
My suggestions to investors: With too many negatives, I suggest you to start SIP immediately and if you have lumpsum invest in liquid fund and route through STP over 9-12 months. When tide changes you will see the portfolio giving high double-digit returns.
“Be fearful when others are greedy, and be greedy only when others are fearful.”- Warren Buffett.