Reserve Bank of India today slashed down the repo rate by 0.5% or 50 basis points to 6.75%. The repo rate now stands at four and half year low. The rate cut shall be effective from 05th October. However the cash reserve ratio has been unchanged and it still stands at 4%.

The cut in the repo rate shall help commercial banks to reduce their home loans. The rate cut will put pressure on private home loan providers. SBI currently provides home loans at 9.7% for women and 9.75% for women. Its nearest rivals offer home loans at 9.85% to 9.9%. From 05th October home loan rates are expected to be between 9.3% to 9.35%.

Reserve Bank of India (RBI) Governor Raghuram Rajan listens to a question at a news conference after the bi-monthly monetary policy review in Mumbai, India, June 2, 2015. REUTERS/Danish Siddiqui

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RBI has cut down its growth rate for the fiscal year to 7.4% from 7.6%, previously. Although the growth rate is lower than the government’s target of 8 to 8.5% yet it is faster than China. It has also said that inflation shall rise from 3.66% in August to 5.8% in January. It has set a new inflation target of 5.8% in January.

RBI has also announced to which intend to open debt and economy markets thus showing confidence in the economy and expecting it to grow as compared to other emerging markets, when U.S interest rates have gone up for the first time in a decade.

While there had been calls from the cabinet to drop the rates, Raghuram Rajan confirms his stand on the matter and he says that his decision on the matter is not influenced by anybody.