Finally after 2 years of continuous upward revisions RBI, in its annual monetary policy for 2012-13, slashed the policy interest rates by 50 basis points surprising analysts and markets. They were expecting a rate cut of 25 bps, but RBI surprised them all by being aggressive.
The repo rates at which Indian banks borrow money from Reserve Bank of India now stands at 8% as compared to 8.5% earlier. Similarly, the reverse repo rate at which RBI borrows money from Indian banks has come down from 7.5% to 7%. The CRR (Cash Reserve Ratio) has been left untouched.
Interest Rate Change over past 3 years
| Date | Reverse Repo | Repo |
| 17-Apr-12 | 7.00 | 8 |
| 25-Jan-11 | 7.50 | 8.50 |
| 16-Sep-11 | 7.25 | 8.25 |
| 26-Jul-11 | 7.00 | 8.00 |
| 16-Jun-11 | 6.50 | 7.50 |
| 3-May-11 | 6.25 | 7.25 |
| 17-Mar-11 | 5.75 | 6.75 |
| 25-Jan-11 | 5.5 | 6.5 |
| 2-Nov-10 | 5.25 | 6.25 |
| 2-Sep-10 | 4.75 | 6.00 |
| 27-Aug-10 | 4.25 | 5.75 |
| 2-Aug-10 | 4. | 5.5 |
| 20-Apr-10 | 3.75 | 5.25 |
| 19-Mar-10 | 3.5 | 5.00 |
| 21-Apr-09 | 3.25 | 4.75 |
One of the main reasons that RBI decided to cut the interest rate is because the inflation has more or less come under check. Double digit Inflation was prevalent for about 2 years and RBI did not have an option but to keep the interest rates higher. The rate of inflation has eased to 6.9% in March of this year, which has been over 10% for most part of last year. The average Indian Inflation rate has been 7.99% in last 40 years.
Higher interest rate have slowed down economic as well as corporate growth in India. Couple of months back India’s GDP growth projection was revised downward from 7.60% to 7% for Financial year 2012-13. However, with RBI has cutting the policy rates, it is expected that India’s GDP will register higher than projected 7% growth.
It’s time to rejoice, as Banks may soon announce slashing of interest rates on home & car loans!
Do you think we will see more rate cuts in coming months?