Press Trust of India, Mumbai, Jan 15: Shedding his hawkish stance, Reserve Bank governor Raghuram Rajan Thursday sprang a surprise by cutting interest rates by 25 basis point — a move that is likely to result in cheaper home and auto loans. Reacting to the development, the BSE Sensex soared by over 650 points while NSE Nifty rose by over 194 points in the afternoon trade.
The rate cut ahead of a scheduled RBI policy meeting on February 3 will result in “more money in the hand of the consumers,” Finance Minister Arun Jaitley said, while bankers said it was a “movement in direction of interest rate cut.”
Rajan, who had focused on quelling inflation since taking office in September 2013, lowered the benchmark repurchase rate to 7.75 per cent from 8 per cent, the first reduction since May 2013.
As a result the reverse repo rate, the rate at which the central bank drains excess liquidity from the banking system, also moved down by 25 basis points to 6.75 per cent. Consumer-price inflation, Rajan said, will probably be below the RBI’s target of 6 per cent by January 2016. “Reduction in the rates is a positive development. It will lead to more money in the hand of the consumers and greater spending. It’s positive for the Indian economy,” Jaitley said. “It will certainly help in reviving investment cycle that the government is trying to restore.”
The following are the highlights of the RBI decision on monetary policy and subsequent developments:
* Key policy rate (repo) cut by 0.25 per cent to 7.75 pc.
* Reverse repo to cut by 0.25 pc; CRR still at 4 pc.
* First cut in interest rate since May 2013.
* EMIs for auto and home loan to come down.
* United Bank of India announces cut in lending rate.
* Other banks likely to follow.
* FM Arun Jaitley terms it positive for economy; says move will leave more money in hands of people.
* India Inc hails interest rate cut.
* BSE Sensex jumps over 800 pts in intra-day trade.
* Since July 2014 inflationary pressures easing, says RBI.
* Crude prices expected to remain low over the year.
* Govt reiterated commitment to fiscal targets, says RBI.
* Inflation is likely to be below 6 pc by January 2016.
* RBI to announce monetary policy review on February 3.