Indian central bank cuts key rate to 6.75%

Take for instance, The State Bank of India (SBI) country’s largest lender slashed its lending rate by 0.40 per cent. The new rate will stand at 9.30 per cent from 5 October onward.

A number of banks including state-run PNB, IDBI Bank and Bank of Baroda, as also private sector lender Axis Bank today lowered lending rates – a day after RBI surprised with a larger-than-expected policy rate cut and prodded banks to pass on the benefits.

India’s central bank aggressively cut interest rates on Tuesday in a bid to kickstart economic growth, following a sharp drop in inflation.

The cut in interest rates will reduce the cost of buying houses or items that require a bank loan.

While reiterating the Central Bank ” s earlier commitment to bring inflation down to 5 per cent by the end of financial year 2017, RBI Governor Raghuram Rajan noted the slowing growth of the Indian economy. On Tuesday, i.e; 29th September 2015 in a press conference called to announce the fourth bi-monthly monetary policy. The RBI cut the benchmark repurchase rate to 6.75 percent from 7.25 percent, and the Reverse repo rate to 5.75 percent from 6.25 percent. There are certain hurdles in the transmission like small savings rate being much higher, base rate computation formula, etc.

Economists had been expecting a cautious 25-basis-point cut and the 50-basis-point reduction means the repo rate is at its lowest since March 2011.

He acknowledged the difficulties in meeting the target, but made it clear that it is “imminently feasible” and drew attention towards the success in bringing down inflation by two percentage points in the last one year. “Bank deposit rates have, however, been reduced significantly, suggesting further transmission is possible”.

‘I don’t think we have been excessively aggressive, ‘ said RBI governor Raghuram Rajan. However, there is no change in CRR and SLR. while complimenting Union Finance Minister Arun Jaitley for impressing upon RBI to make impressive cut in repo rates said that it was long awaited demand of trade and industry including CAIT which has exceeded the expectations.

Welcoming the rate cut by the RBI, automobile manufacturers and real estate firms among others said the central bank’s move is nothing but a “festival gift” for them and it would help the struggling sectors in a few way or the other.