RBI rate cut to reduce home, auto loan EMIs

Sanjeev Sharma

Tribune News Service

New Delhi, March 4

The Reserve Bank of India (RBI) today cut the benchmark interest rate by 25 basis points, which is expected to reduce equated monthly instalments (EMI) on home and auto loans.

The RBI’s decision to cut its policy or repo rate to 7.5 per cent — after another cut from 8 per cent to 7.75 per cent on January 15 — sent the benchmark BSE Sensex soaring to the historic 30,000-mark in opening trade.

The move, prompted by inflation remaining low, comes within days of Finance Minister Arun Jaitley announcing in the Union Budget that the government was committed to fiscal consolidation.

RBI Governor Raghuram Rajan said the rate cut was prompted by low inflation and fiscal consolidation in the Budget. He said with the release of the agreement on the monetary policy framework, it was appropriate for the RBI to offer guidance on how it would implement the mandate. For the second time in two months, the rate cut has come outside the monetary policy. The two cuts now mean that the RBI has cut 50 basis points in two months and since last time the cuts had not really been passed on, the additional cut will give more incentive to the banks to reduce rates on loans.

The Finance Ministry has welcomed the RBI decision to cut policy rate by 0.25 per cent and said it would bring down EMIs, increase demand and boost economic growth.

"What is going to happen to rate cycle moving forward is going to be driven by data and the RBI has signaled this clearly," Minister of State for Finance Jayant Sinha said.