RBI Tries to Help the Economy Grow

The Reserve Bank of India (RBI) just made a big decision. It cut interest rates again — this time by 0.5% (or 50 basis points). That’s good news for people who have to pay EMIs (monthly loan payments), because their payments could now become cheaper.

So why did RBI do this? The goal is to help India’s economy grow faster. In the last few months, the economy grew by 7.4%, which sounds great. But most of that growth came from the government spending money on building things like roads and bridges. Factories and companies making goods (that’s called manufacturing) didn’t grow much. And that’s a problem because strong factory growth means more jobs and more money in people’s pockets.

For India to grow well this year, people need to spend more — especially on things like cars and homes. These industries give jobs to millions of people. To help with that, RBI has already made loans cheaper three times this year. Now it’s hoping that cheaper loans will make more people buy homes and cars, which will boost the economy.

Prices of things (inflation) have finally stopped rising so fast, so the RBI felt safe enough to cut rates. But some experts think people aren’t buying more because they simply don’t earn enough. After Covid, many carmakers and builders started making only expensive models. Small, cheaper cars and homes became rare. So middle-class families couldn’t afford them.

Now, with cheaper loans, the RBI hopes more middle-income families can buy these things again. If that happens, businesses will also invest more in new projects — and that will help the economy grow. But if it doesn’t, the government may need to focus on helping people earn more money.

RBI has said it won’t cut rates again soon. So now, everyone’s waiting to see: Will this plan work?

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