MUMBAI, Sept 29 - Reserve Bank Governor Raghuram Rajan today sprang a surprise by effecting a more-than-expected interest rate cut of half a per cent to boost the economy and bring down cost of home, consumer and industry loans, a decision that was matched by market leader SBI slashing lending rate by 0.4 per cent.
Leading private banks ICICI and Axis Bank also indicated that they would bring down the lending rates, while public sector Andhra Bank was first off the block, cutting interest rate by 0.25 per cent.
While the RBI action will benefit borrowers, it will also lead to reduction in deposit and savings rate. The government also disclosed that it will review the interest rate on small savings, PPF and Post Office deposits, to bring them in line with market.
Heeding to clamour from the government as well as industry, Rajan effected the fourth cut in repo rate in 2015, the biggest in three years, on the back of moderating inflation and favourable global commodity and oil prices.
In its fourth bimonthly monetary policy for the current fiscal, the RBI cut benchmark repurchase (repo) rate from 7.25 per cent to 6.75 per cent, lowest in four-and-half-years.
Rajan justified the reduction saying consumer inflation was likely to be at 5.8 per cent, below the 6 per cent target for January.
The focus should now shift to bringing inflation to around 5 per cent by March 2017, he said, adding that the RBI will be vigilant for signs of monetary policy adjustments that are needed to stick to the �deflationary path�.
The RBI lowered its economic growth forecast for the current fiscal to 7.4 per cent from its previous projection of 7.6 per cent.
The government and industry welcomed the RBI decision and nudged banks to transmit the benefit to borrowers to boost investments and economy.
�This decision of the RBI will significantly provide policy support to the real economy and help in the recovery process... �We are looking forward now to the transmission of these cuts which will effectively help to boost confidence and investment. They will also help to realise the economy�s medium term potential growth rate,� Finance Minister Arun Jaitley told reporters here.
Quick to act on the RBI cue, the State Bank of India (SBI) reduced lending rate by 0.4 per cent to 9.3 per cent per annum, setting a trend for a benign rate regime. � PTI