Reacting to the development, the BSE soared by over 650 points while NSE rose by over 194 points in the afternoon trade.
The rate cut ahead of a scheduled RBI policy meeting on February 3 will result in “more money in the hand of the consumers,” Finance Minister Arun Jaitley said, while bankers said it was a “movement in direction of interest rate cut.”Reduction in the rates is a positive development. It will lead to more money in the hand of the consumers and greater spending. It’s positive for the Indian economy,” Jaitley said.
Rajan, who had focused on quelling inflation since taking office in September 2013, lowered the benchmark repurchase rate to 7.75 percent from 8 percent, the first reduction in over 20 months. The RBI had last cut rate on May 3, 2013.
As a result the reverse repo rate, the rate at which the Central bank drains excess liquidity from the banking system, also moved down by 25 basis points to 6.75 percent.