RBI springs 50 bps rate cut surprise

The Reserve Bank of India (RBI) on Tuesday lowered its benchmark interest rate by a higher-than-expected 50 basis points to a four-year low, seeking to ease borrowing costs and stimulate economic growth by taking advantage of record-low consumer price inflation.

Governor Raghuram Rajan reduced the repo rate, at which the central bank lends to commercial banks, to 6.75% from 7.25% in the fourth cut since the start of January. The repo rate has been cut by a total of 125 basis points this year.

One basis point is one-hundredth of a percentage point. Ten bank economists and executives polled by Mint had expected a cut of no more than 25 basis points.

The higher-than-expected rate cut should silence critics who believe RBI’s insistence on inflation control above all else has come at the cost of economic growth, which slowed to 7% in the three months ended June from 7.5% in the preceding quarter.

State Bank of India, the country’s largest lender, responded swiftly with a 40 basis point cut in its base rate, the rupee strengthened, bond prices rose and stock indices jumped after the rate cut.

HT Mint, New Delhi, 30th Sept. 2015

 
     
138955 Times Visited