RBI trims policy interest rate by 25 bps to 5.25 pc, loans to get cheaper

Shrugging off concerns over the depreciation of rupee, the Reserve Bank of India has cut interest rates by 25 basis points to 5.25 per cent in a bid to further bolster economic growth, which rose to a six-quarter high of 8.2 per cent in the second quarter of the current financial year, as per government data.

The development is expected to make advances, including housing, auto and commercial loans, cheaper.

Announcing the fifth bi-monthly monetary policy for the current fiscal, RBI governor Sanjay Malhotra said the monetary policy committee (MPC) has unanimously decided to cut the short-term lending rate or repo rate by 25 basis points to 5.25 per cent with a neutral stance.

The rate cut comes on the back of the consumer price index (CPI) based headline retail inflation ruling below the 2 per cent lower band mandated by the government for the last three months.

India's retail inflation dropped to a historic low of 0.25 per cent in October as per official figures, marking the lowest level since the CPI series was introduced. Besides, the Indian economy has clocked better-than-expected GDP growth of 8.2 per cent in the second quarter.

However, the rupee declined to historic low and crossed 90 against a dollar earlier this week making imports costlier, raising fears of rise in inflation. The rupee has depreciated by about 5 per cent so far this year.

The RBI has sharply raised growth projection to 7.3 per cent from the earlier 6.8 per cent for the current financial year. The central bank has been tasked by the government to ensure that CPI- based retail inflation remains at 4 per cent with a margin of 2 per cent on either side.

Based on the recommendation of the MPC, the RBI reduced the repo rate by 25 bps each in February and April, and 50 basis points in June amidst easing retail inflation.

Retail inflation has been trending below 4 per cent since February this year as per official data. It eased to a historic low in October, aided by an easing of food prices and favourable base effect.