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Loans to become cheaper as RBI cuts short-term rates

April 21, 2009

In a move that could bring further relief to the home, auto and corporate borrowers, the Reserve Bank of India on Tuesday cut short-term lending (repo) and borrowing (reverse repo) rates by 25 basis points.

In its annual credit policy for 2009-10, the RBI reduced the repo rate to 4.75 per cent and reverse repo to 3.25 per cent with immediate effect, while retaining other key rates like the cash reserve ratio, the percentage of deposits that banks keep with the central bank.

In view of the ongoing global economic slowdown, the central bank has pegged the economic growth rate forecast for the current fiscal to 6 per cent, against 6.5-6.7 per cent estimated for 2008-09.

"Any upturn in growth momentum is unlikely in view of the projected contraction in global demand during 2009, particularly decline in trade," RBI Governor D Subbarao said in the policy, adding private investment demand was expected to remain subdued.

Image: Reserve Bank of India Governor Duvvuri Subbarao (L) speaks as deputy governor Rakesh Mohan watches. | Photograph: Punit Paranjpe/Reuters

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