Home, auto loans to become cheaper; RBI cuts interest rate by 0.5%

Zee Media Bureau

New Delhi: Home, auto and corporate loans would cost less after RBI on Tuesday cut interest rate by 50 basis points or 0.5 percent to spur investment and growth.

"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," Rajan said.

The reduction comes on the back of interest rates being cut thrice earlier this year by 25 basis points each.

Within minutes of RBI policy announcement, Andhra Bank cut its benchmark lending rates by 0.25 per cent. The other banks are likely to follow suit.

After the rate cut, the repo rate stands at 4-year low of 6.75 percent while the reverse repo rate stands at 5.75 percent. The RBI has kept the CRR unchanged at 4 percent.

RBI has cut FY16 real GDP growth estimate to 7.4 percent while expecting that growth will pick up towards the latter part of the fiscal. RBI has said that inflation is expected to reach 5.8 percent in January 2016.

“Inflation will stay below January 2016 target of 6 percent in FY16 and will average 5.5 percent for FY17,” said RBI Governor Raghuram Rajan.

As regards the price situation, the wholesale price index (WPI) remained in the negative territory for 10 months in a row and stood at (-)4.95 percent while retail inflation eased to a record low of 3.66 percent in August.

Global turmoil triggered by devaluation of the yuan and reports of a slowing growth in China have impacted Indian currency and stock markets.

The first quarter GDP print of 7 percent was below market expectations while industrial output growth in April-July came in at 3.5 percent.