The RBI Declares Unbelievable Cuts on the Repo Rates

The declaration of the reduced interest rate by the RBI President Raghuram Rajan certainly brings good news to the nation. With inflation running at record lows, this is undoubtedly a better than expected move on their part. Along with that, the declaration of the reduced rate has made the common people quite upbeat as they can now take loans from banks at an incredibly low interest. No doubt, such an amazing rate is immensely attractive to those who are now planning to take home and car loans.

The Reserve Bank of India (RBI) cut its policy interest rate to a 4-1/2 year low to 6.75 percent on Tuesday. According to the President, such a move will be helpful in could moving up the economy that has been slowing down due to the lows in the inflation. “I don’t think we have been excessively aggressive,” RBI Governor Raghuram Rajan came up with his view in a news conference, when he was asked to explain the policies of RBI to ease the process of economic growth properly.

In this connection, the President added, “Clearly this was about, given the state of the economy, how can we move forward.” The increasing concern over India’s momentous decrease of inflation rate somehow triggered such a decision of the RBI.

As per the present scenario, initially, the RBI cut its growth forecast 7.4 percent from 7.6 percent previously, though the government’s target was not below 8 to 8.5 percent. However, with such a reduced rate Indian is still keeping up faster than China.

The apex bank has also said that the drastic rise of the inflation in the month of August has obviously had an adverse effect on India’s economy. The record low of 3.66 percent to 5.8 percent was surely a prime indicator to the slowing economy of the country. With this new move, RBI has again set a target of around 5 percent by March 2017. And, at the same time, Rajan has assured that RBI will keep up with the real interest rates benchmarked to a 1-year Treasury bill rate which is 1.5 to 2 percent.

In order to further the open debt and currency markets, RBI is also planning for several financial measures. The President believes that these measures will go a step further to make India performing better than most of the emerging market peers when U.S. interest rates eventually go up for the first time in near future.

Among the most happening measures adopted by the RBI, mention must be made of the $30 billion limit for foreign investments in government bonds by March 2018. In addition it also allows overseas funds to buy debt of the Indian states. No wonder, the size of the interest is also amazing.

“We think that today’s larger-than-expected rate cut will mark the end of the easing cycle,” Shilan Shah, the renowned economist from Capital Economics in Singapore has said.

However, the present scenario seems quite stable on all ends and following the decision of the RBI, the State Bank of India has lowered its base lending rate to 9.3% after reducing it by 40 bps.


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