The Central Bank of India has suddenly cut its interest rate twice within this present year. India which is the number three on the list of Asian economies, has reduced policy repo rate to 7.5 percent which is a reduction of 25 points, following a reduction like this carried out in the month of January  this year.

 

In other words, the central bank in India has reduced the interest rate for loaning money to all the commercial banks – this is what is referred to as the repo rate.

 

The reduction took financial market investors by surprise because they were all without the approval of policy makers, off planned policy meetings in India.

 

However, the reduction of interest rate has strengthen the Indian rupee, because its value increased against the United States dollar to the highest February value of 61.88. And 1.4 percent was the increased rate of BSE Sensex  to 30,010.91 – which is the only time it has passed the mark of 30,000.

 

The interest rate reduction is just following the government release of its annual budget, and the plan of the central bank with the government to implement inflation goals.

 

Raghuram Rajan, the governor of the central bank of India said on Wednesday that “softer readings on inflation are expected to come in through the first half of 2015-16 before firming up to below 6% in the second half”.

 

Inflation rate in India has relaxed suddenly to 5.11 percent which is below the 6 percent goal set by the central bank. This is because of the sharp drop in the price of oil globally.

 

Image:By Karthik Nadar (Own work) [CC BY-SA 3.0], via Wikimedia Commons