RBI cuts Repo Rates by 25 bps to 7.5%
After a few days after Union Budget, RBI Governor Raghuram Rajan has astonished the financial market of the country with his surprise move. RBI has again cut the Repo Rate by 25 bps to 7.5% from 7.75% in less than two months. This was the second rate cut by Rajan in this year. So, RBI has eliminated the Repo Rate, the rate at which RBI lends money to the banks by a total of 50 bps in 2015. This Rate Cut has boomed the Stock markets and the Sensex has hit 30,000 for the first time.
This Rate cut is implemented to boost Government proposals for lowering the Inflation Rates and achieving a Fiscal Consolidation Target of 3% up to 2018. The inflation is expected to be below 6% in this Fiscal Year.
According to Raghuram Rajan, “The need to act outside the policy review cycle is prompted by two factors: First, while the next bi-monthly policy statement will be issued on April 7, 2015, the still weak state of certain sectors of the economy as well as the global trend towards easing suggests that any policy action should be anticipatory once sufficient data support the policy stance. Second, with the release of the agreement on the monetary policy framework, it is appropriate for the Reserve Bank to offer guidance on how it will implement the mandate.”
As RBI has cut the repo rate for the second time in the year, there are chances that banks may lower Interest Rates on Home Loans and Auto Loans. This is a huge opportunity for customers to apply for loans. Banks may lower EMIs after the rate cut. “It is high time that banks should make a decision and cut their base rate immediately,” said SL Bansal, former chairman and managing director of state-run Oriental Bank of Commerce. This will raise the amount in customers’ pockets.
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