The Reserve Bank of India cut its repo rate by 50 basis points (bps) on Tuesday and not by 25 bps as widely expected, because it has a better understanding of growth and inflation than during the March policy, Governor Duvvuri Subbarao said.
He said a bigger cut in the key interest rate would ensure more effective monetary policy transmission.
The wholesale price index, India's main inflation indicator, rose an annual 6.89 per cent in March, higher than 6.70 per cent rise estimated by analysts, but lower than 6.95 per cent in February.
The country's industrial output rose a much slower-than-expected 4.1 per cent in February from a year earlier, recent data showed.
SOURCE: http://economictimes.indiatimes.com/news/economy/policy/rbi-has-better-understanding-of-growth-inflation-now--duvvuri-subbarao/articleshow/12703423.cms and RBE � s g �L 8� rong message to cut interest rates.
He said IDBI Bank would take a view on the interest rate at its Asset Liability Committee (Alco) meeting in the next few days.
According to Indian Overseas Bank Executive Director A K Bansal, both deposit and advances rates would come down.
Base rate of banks vary from 10 per cent to 12 per cent, while home loan rates are between 10.75 per cent and 14 per cent. Auto loans range from 12 per cent to 15 per cent.
Bansal said there would be reduction in fixed deposits rates, followed by cut in lending rates.
On the quantum of reduction, he said Alco of the bank would take a call taking into consideration all the aspect.
Terming the policy action as "pleasant surprise", Dena Bank Executive Director A K Dutt said the reduction in RBI is more than what was being expected in the market. It was widely anticipated that there would be a cut of 0.25 per cent in the policy rate.
"Since the cost of raising fund has come down, there would some softening of interest rates. When and how much would depend on bank to bank," Dutt said.
There would be reduction in fixed deposit rates as well, he added.
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