RBI cuts repo rate by 25 basis points

rbiReserve Bank today cut the benchmark repo rate by 25 basis points as expected. RBI’s first rate cut in over six months sent interest rates to over five-year low of 6.50 per cent.

Dr Raghu Ram Rajan, the governor, stressed that the RBI will ensure that lenders pass on the benefits of lower interest rates to borrowers.

The RBI had cut its repo rate by 125 basis points last year, but banks, complaining of tight cash conditions, have only lowered their lending rates by around 60 basis points, preventing rate cuts from reaching the common people.

Interest rates however started falling since April 1, after lenders adopted a new formula to calculate rates following RBI’s orders.

Dr Rajan also retained his “accommodative” stance, raising the prospect of further rate cuts later this year. “Borrowing is now significantly cheaper and will continue to get so,” he said.

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