In an attention-grabbing announcement, Reserve Bank of India (RBI) governor Raghuram Rajan lowered the repo rate by 50-point basis, to 6.75 per cent from 7.25 per cent.
Another private sector lender, Kotak Mahindra Bank, reduced its base rate by 0.25 per cent to 9.50 per cent.
The base rate is the minimum rate of interest at which a bank lends to borrowers.
Atsi Sheth of Moody’s Investors Service said the extent of the rate cut suggested the central bank thought underlying growth was still subdued.
SBI announced a 0.40% cut in lending rate to 9.30%, which is the most competitive in the market at present.
The Reserve Bank of India cut its policy rate by a surprisingly wide 50 basis points Tuesday as falling inflation allowed for greater policy breathing room – a move aimed at keeping India’s economy growing despite a global slowdown and sluggish domestic business.
The Central Bank, which carried out the larger than expected bank rate cut, had made an appeal to the banks to pass on the benefits to the consumers?
The new base rate will be effective from October 5.
India’s central bank cut its policy interest rate to a four-and-a-half-year low yesterday, in a bigger-than-expected move that, with inflation running at record lows, could help an economy in danger of slowing down.
Since January, the RBI has reduced the repo rate by a total of 125 bps. 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.
Chief Economic Adviser Arvind Subramanian said the government would now do “all that needs to be done”, including adhering to the fiscal deficit target and reviewing other policies, to facilitate rate cut transmission.
The bank will also be cutting fixed deposit rates by 0.25 per cent across various maturities from October 5, she added.
“If SBI can reduce rates by 40 basis points then that’s the least we expect from our bank”. Presently, their base rates stand, respectively, at 9.7 percent and 9.35 percent.