The RBI's decision to cut its policy or repo rate to 7.5 percent -- after another cut from 8 percent to 7.75 percent on January 15 -- is also expected to lower the cost of capital
for the companies and give a fillip to the investment climate.
     
The move, prompted by inflation remaining low, comes within days of Finance Minister Arun Jaitley announcing in the Union Budget that the government was committed to fiscal
consolidation.


Read more: Will take appropriate call on lending rates soon: Bankers

  


RBI Governor Raghuram Rajan said the rate cut was prompted by softening inflation and fiscal deficit reduction roadmap unveiled by Jaitley in his Budget on Saturday.


"Softer readings on inflation are expected to come in through the first half of 2015-16 before firming up to below 6 percent in the second half. The fiscal consolidation programme, while delayed, may compensate in quality, especially if state governments are cooperative," he said.

Read more: Further rate cuts of up to 0.75 percent expected in 2015: Experts


  

The early morning rate cut announcement send the benchmark BSE Sensex soaring to the historic 30,000-mark in opening trade.
     
A number of bankers and economists said that RBI may further cut the rates by 50-75 basis points during 2015, including a cut during the RBI's scheduled policy review meeting next month on April 7.

The last two cuts -- including the one announced today and the previous one on January 15 -- have been outside the regular policy reviews.


Read more: After RBI rate cut, Government pitches for rating upgrade

Welcoming RBI's decision, Minister of State for Finance Jayant Sinha said it should bring down the loan EMIs significantly and there is room for further easing of rates.
     
SBI chairperson Arundhati Bhattacharya said the bank will take an "appropriate call" on its lending rates soon.

The Indian Banks' Association chairman T M Bhasin said the rate cut would "accentuate banks to review their base rates".


Read more:RBI rate cut good for business, will boost demand:Revenue Secretary

  
The industry chambers too hoped that the banks would pass on the rate cut benefits to the borrowers.

Read more: Rate cut to give boost to economy; EMIs to come down: Jayant Sinha

 

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