RBI Rate Cut

RBI Governor recently told that RBI has acted ahead of time by cutting interest rates in the context of an economic slowdown. But the problem is that mere rate cuts won’t be able to revive demand. There are two components to cost of an asset, principal, and rates of interest. Unless the cost of a bigger component that is principal does not fall, there won’t be a revival. Buying a land requires both basic costs of land and interest component. Merely fall in interest rates will not revive demand. Given a choice, one would prefer higher interest rate and lower cost of land, for example.


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