What is the relationship between tax exemption and repo rate cut?
The government has left more money for people to spend by reducing income tax in Budget 2025-26 and changing the TDS limit. That is, when the government gives huge tax exemption, people and companies get more money to spend. This has a direct impact on the economy. But if loans remain expensive, then people and businesses will avoid spending more. Therefore, RBI reduces interest rates so that loans are cheap and the habit of spending remains.
At the same time, RBI has put Rs 1.5 lakh crore in banks to overcome the shortage of money. This will make it easier for banks to give loans. When banks have more money, they will be able to give loans to more people. The cut in repo rate has made this step more effective. Meaning, now banks have more money and interest rates are also low, this will give a strong boost to development.
Overall, the government's budget, falling inflation and RBI's steps have together created a good trio to boost the economy. The purpose of all these steps is to accelerate the country's economic pace and put more money in people's pockets.
America's tariff war poses a threat to the world, will india get relief from a repo rate cut?
The US has recently imposed new taxes on Canada, mexico and China, which has increased the fear of trade war across the world. The effect of this is that the indian rupee has weakened against the dollar and the value of one dollar has reached Rs 87.29. Not only this, there is also a threat of rising inflation.
In such a situation, the repo rate cut by the RBI is being considered a good step. The indian economy can be saved to some extent from external shocks by reducing the repo rate. Actually, when the repo rate is low, banks get loans at a lower interest rate, due to which they are able to give loans to customers at a lower interest rate. This increases the flow of money in the market. Economic activities accelerate and development is promoted. However, it is difficult to say that a cut in the repo rate alone will be enough to deal with all these challenges. Now we have to see how the global economic situation turns in the coming days and what further steps the RBI takes.
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