RBI cuts key bank rates

Interest rates on loans—for homes, cars and other kinds of consumer finance—are set to go down by another 0.5 percentage points following a decision by the Reserve Bank of India to cut key rates to that extent . The RBI announced that the repo rate, effectively the rate at which it lends short-term funds to banks, and the reverse repo rate—which it gives on funds parked by banks with the central bank—would be cut by 0.5 percentage points with immediate effect. The new repo rate will be 5% and the reverse repo rate 3.5%. Banks, which have been aggressively reducing rates of late, indicated soon after the announcement that they would pass on the benefit of lower rates to their customers in the form of rate cuts on loans. However, they would also cut the interest rates they give on deposits by a corresponding amount. Banks are likely to reduce PLR, which would benefit existing borrowers on floating rate loans, not just new ones Since Oct 2008, RBI has cut repo rate 5 times, from 9% to 5% and reverse repo rate thrice, from 6% to 3.5%