The Reserve Bank of India (RBI) surprised the market by cutting the repo rate by 25 basis points to 7.5%. The first rate cut was done on January 15. Repo rate is the rate at which the RBI lends money to commercial banks in the event of any shortfall of funds.
The EMI on home loan and auto loan will go down, thanks to the rate cut. The BSE Sensex gave a big thumbs up to the development. The sensex hit the 30,000 mark for the first time with a rise of 300+ points at 9:30 AM.
While announcing the rate cut, RBI Governor Raghuram Rajan said, “Inflation in January 2015 at 5.1% as measured by the new index was well within the target of 8% for January 2015.” He said that prices of vegetables declined and, inflation excluding food and fuel moderated in a broad-based manner to a new low.
“Thus, disinflation is evolving along the path set out by the Reserve Bank in January 2014 and, in fact, at a faster pace than earlier envisaged,” he said.
Rajan, however, cautioned against hardening of oil prices over the past few weeks because of uncertainties surrounding geopolitical events across the globe. He said that these events have the power to alter inflation outlook of the RBI.