Rate cut to give boost to economy; EMIs to come down: Jayant Sinha

RBI lowers rates by 0.25%; Sinha says rate cut was a vote of confidence for the Union Budget

Expecting a near-term boost to economy from RBI's rate cut, Minister of State for Finance Jayant Sinha today said the decision should bring down the loan EMIs significantly and there is room for further easing of rates.

Soon after RBI's decision to lower rates by 0.25%, Sinha said that the rate cut was a vote of confidence for the Union Budget presented last week.

The rate cut would give a boost to economy in the near terms and EMIs will come down significantly, the Minister said.

"What is going to happen to rate cycle moving forward is going to be driven by data and RBI has signalled this clearly," he said, while adding that further room for easing rates remains.

He said that inflationary expectations have collapsed and a global trend of deflation was prevalent.

"We have said in Parliament that we are pursuing a very prudent fiscal consolidation road map. Our aim is to move growth onto a sustainable, non-inflationary path... We are in a situation where we see EMIs (Equated Monthly Installments for loan repayments) coming down.

"RBI has appreciated budget's 'fine balance'. It is a welcome step for all citizens of India as everyone is looking for near-term boost in economy," he added.

Chief Economic Adviser Arvind Subramanian also said that the rate cut by RBI is a welcome step and good for economy.

"Government and RBI share views on economic outlook," he said, while adding that the move shows that Budget is conducive for non-inflationary growth.

The Reserve Bank today surprised markets by reducing the benchmark interest rate by 0.25% to 7.5% on the back of softening inflation and the government's commitment to continue the fiscal consolidation programme.

The short term lending rate (repo) will be reduced from 7.75% to 7.5% with immediate effect and the other rates would be adjusted accordingly, RBI Governor Raghuram Rajan announced this morning.

Soon after the rate cut announcement, the BSE Sensex soared to the historic 30,000-mark. This is the second time in less than two months that the RBI has cut interest rates outside the regular policy reviews.

Last time on January 15, it had cut the repo rate by 0.25% to 7.75%.