State Bank of India (SBI) – the country’s largest lender – today described the surprised interest rate cut by the Reserve Bank of India (RBI) as the beginning of a rate easing cycle but refrained from commenting on whether the lender will take a cue and reduce its base rate. The base rate is the benchmark lending rate for banks, to which all other loan rates are linked.
“We welcome the 25 basis point (bps) repo rate cut by the RBI. With global crude and commodity prices expected to be benign and inflationary expectations moderating to single digit, the current disinflationary impetus is likely to be firmly entrenched and unwinding,” said Arundhati Bhattacharya, chairman, SBI.
“We thus believe that this cut may be just the beginning of a rate easing cycle,” she added.
SBI recently reduced its deposit rate, which will lower its cost of funds - a key element that decides a bank's base rate. At present, SBI’s base rate is at 10%.
Kolkata-based United Bank of India (UBI) already responded with a base rate cut of 25 bps to 10%. UBI officials said while they were thinking of an interest rate reduction, today’s RBI move has helped them advance the decision.
In a surprise move, RBI today announced a cut in the repo rate by 25 bps – the key policy rate – to 7.75% for the first time since Governor Raghuram Rajan took charge in September 2013.