Mumbai: After shoring up the banking system with Rs1.45 trillion, the Reserve Bank on 20 October paved the way for cheaper home, consumer, corporate and personal loan rates by slashing its key short-term lending rate (repo) by 100 basis points.
The cut in repo, the first since 2004, would allow banks to immediately borrow short-term funds from the apex bank at a cheaper 8% as against 9% till now.
Finance Minister P Chidambaram told reporters in New Delhi that this move “will enthuse investors to continue to take forward their investment proposals.”
“It is a welcome step and clearly shows that the interest rate regime is now on a descent curve,” HDFC Bank’s Deputy Treasurer, Ashish Parthasarathy, told PTI here.
Earlier, RBI cut the mandatory cash deposits that banks must keep with it (CRR) by 250 basis points after five years, along with other measures to inject a total of Rs1.45 trillion into the system.
“It is a pro-growth measure,” IDBI Bank’s chairman and managing director, Yogesh Agarwal, said.
The bank said in the announcement that comes ahead of the scheduled review of its monetary policy stance on 24 October.
The global financial situation continued to be uncertain and unsettled, the Reserve Bank, said, adding that despite action by regulators abroad, “confidence and calm is yet to be fully restored in the financial markets.”
“With softening of global crude and commodity prices and inflation declining, growth has emerged as a bigger issue. The repo rate cut is designed to push up growth,” HDFC Bank’s Parthasarathy said.