RBI springs a surprise, cuts repo rate by 50 bps to 6.75 per cent

In an unexpected move, the Reserve Bank of India on Tuesday slashed the repo rate by 50bps, the highest cut in four years. The repo rate, now at 6.75 percent, is at the lowest in four-and-a-half years.

In its monetary policy statement, the apex bank said that inflation at historic low- levels, US Federal Reserve’s decision to postpone a rate hike and higher sowing area despite a weak monsoon, pushed the bank to cut rates.

However, RBI Governor Raghuram Rajan has said that the rate cut isn’t a “Diwali bonus”, and that it is based on the progress on the ground.

RBI has cut rates by a total of 1.25 percent this year, while only about 30bps has been passed on by the banks to borrowers. Rajan has urged banks to cut the lending rates, to make loans more affordable for people.

Minutes after the RBI policy was announced, Andhra Bank slashed its benchmark lending rate by 25bps.