The rate cut effected by RBI's MPC, along with Centre's income tax relief measures announced in the Union Budget will boost consumption in the coming fiscal, according to economists.
The central bank on February 7 delivered its first rate cut in five years, projecting inflation to trend lower to within the RBI target of 4 percent, and economic activity to gather pace.
Read More: RBI rate cut, income tax rebate to boost consumption, says government official
“Already, fiscal policy support has been announced through the Budget for consumption demand through additional disposable income, and investment demand through augmented effective capital expenditure. Now, monetary policy would also support consumption and private investment demand,” DK Srivastava, chief policy advisor, EY said.
Srivastava said the fall in real interest rate is also expected to help investment. “The private sector would also be induced to undertake higher investments with a reduced cost of borrowing and with the expectation that it may be reduced further,” he added.
Analysis by Department of Financial Services points out that tax cuts are likely to help Rs 40,000-45,000 crore flow into the banking system through savings, which should boost credit growth. The rate cut announced by the RBI MPC is expected to provide further impetus.
Read More: RBI puts economic growth on the front burner
“Recently, the government has also initiated pro-consumption measures, such as tax relief in the FY26 budget, which will positively impact growth. Now, with the RBI joining hands with the central government through its monetary policy to ease borrowing costs, further support to growth is expected. Keeping these positive measures in mind, we continue to remain firm on our 7 percent GDP growth forecast for FY25,” said Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Group.
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