RBI cuts key rate by 0.25%; home, auto loans to become cheaper

EMIs on home and auto loans will come down with SBI and other banks cutting lending rates within hours of RBI today slashing policy rate by 0.25 per cent for the third time this year.
Reserve Bank Governor Raghuram Rajan, however, cautioned that uncertain monsoon may prevent future rate cuts, an outlook that disappointed markets.
Central bank in its second bi-monthly monetary policy used subdued inflationary condition to "front load" the repo rate cut to 7.25 per cent to spur investment and growth, a move that the government as well as India Inc welcomed but stock markets reacted with the largest fall in nearly four weeks.

Responding to the RBI policy action, country's largest lender SBI reduced the lending rate by 0.15 per cent to 9.7 per cent, while Allahabad Bank and Punjab & Sind Bank cut their base rates by 0.3 per cent and 0.25 per cent respectively. Others are likely to follow suit.
Rate cut apart, Rajan suggested to the government to prepare 'contingency plans' to deal with the impact of deficient monsoon on food prices.
Hours later, India Meteorological Department (IMD) said the monsoon is likely to be only 88 per cent of the normal average or "deficient", triggering fears of drought and adding further uncertainty in the market.

RBI lowered the economic growth forecast for the current fiscal and said last week's high GDP numbers are not reflective of the reality on the ground.

"Even with the 7.5 per cent growth numbers, there is some discussion of how much that includes special factors in the last quarter, including excise taxes and subsidy. And so when you subtract that, the growth in the last quarter doesn't look as strong as before," Rajan said.
"And so, you could point to those numbers also suggesting growth is weaker than at least the headline numbers suggest," he added.
RBI cut the repo rate (short-term lending rate) from 7.5 per cent to 7.25, but left all other policy tools like cash reserve requirement unchanged at 4 per cent and Statutory Liquidity Ratio at 21.5 per cent.

The BSE benchmark index Sensex plunged by 661 points, its biggest fall in nearly a month, and rupee went down by 12 paise as RBI took a cautious stance on economic recovery, while forecast of a deficient monsoon added to the rout.