Home and corporate loans will cost less as the Reserve Bank today lowered the key interest rate by 0.50 per cent — the biggest cut in over three years — to bolster the economy.
In its fourth bi-monthly monetary policy for the current fiscal, RBI cut the benchmark repurchase (repo) rate from 7.25 per cent to 6.75 per cent, the lowest in four-and-a-half-years.
RBI Governor Raghuram Rajan, who had faced growing pressure from the Government as also industry to reduce one of Asia’s highest borrowing costs, justified the bigger than expected reduction saying consumer inflation was likely to be at 5.8 per cent, below the 6 per cent target for January.
The focus should now shift to bringing inflation to around 5 per cent by March 2017, he said, adding that RBI will be vigilant for signs of monetary policy adjustments that are needed to stick to the “deflationary path”.
He also drew comfort from the US Federal Reserve delaying the first hike in interest rates in nine years, which may have put emerging market currencies under pressure.
RBI lowered its economic growth forecast for the current fiscal to 7.4 per cent from its previous projection of 7.6 per cent.
“While the Reserve Bank’s stance will continue to be accommodative, the focus of monetary action for the near term will shift to working with the Government to ensure that impediments to banks passing on the bulk of the cumulative 125 basis points cut in the policy rate are removed,” Rajan said.
The reduction comes on the back of interest rates being cut thrice earlier this year by 25 basis points each.
Within minutes of the RBI policy announcement, Andhra Bank cut its benchmark lending rates by 0.25 per cent. The other banks are likely to follow suit.
The BSE Sensex, which was over 300 points down, staged a recovery after the announcement of the policy. However, it again slipped into the negative zone.