In a move that will bring relief to lakhs of home loan takers across the country, the RBI has cut its repo rate by 50 basis points. This brings the repo rate down to 6.75% which is the lowest it has been at in the last 4.5 years. The central bank has cut its lending rate 4 times this year. Most economists had predicted a 25 basis points cut and no one was really expecting this big a cut.

“While the Reserve Bank’s stance will continue to be accommodative, the focus of monetary action for the near term will shift to working with the government to ensure that impediments to banks passing on the bulk of the cumulative 125 basis points cut in the policy rate are removed,” said Raghuram Rajan, Governor of the RBI while announcing the cut.

The last time the repo rate stood at 6.75% was in March 2011. The repo rate is the rate at which the central bank lends to other commercial banks. This massive rate cut is expected to benefit anyone who has taken a home loan. Home loan EMIs are set to come down as the repo rate has a direct impact on them. The State Bank of India has lowered its base rate by 40 basis points. Other banks are expected to follow suit in the coming days.

While this rate cut was done to ensure that the economy of the country remains on the growth path, Rajan does not considered it as an aggressive move. He said that since all the conditions which were laid down by the bank during the last monetary policy announcement were met, the bank decided to go ahead with this cut. This move is the biggest monetary policy decision taken by the Governor in his tenure.

Kavitha Ravi for IndiaProperty.com

Image: By BengaliHindu (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons

By: indiaproperty.com