The Reserve Bank of India (RBI) on Tuesday cut the policy rates by 0.50 percentage points, signalling banks to cut the lending rates. The decision is likely to help borrowers breathe easy.

“This itself is a strongest signal……50 basis points cut is more effective than a smaller cut,” RBI Governor D. Subbarao said at a press conference here after meeting bankers as part of the Annual Monetary Policy announcement for 2012-13.

The short-term repo rate (at which banks borrow from RBI) has been cut from 8.5 per cent to 8 per cent.

This reduction in rates after they were increased 13 times between March 2010 and October 2011 surprised the market, which was expecting a cut of 0.25 percentage points.

However, one has to wait and see how banks will put it into practice.

The RBI expected inflation to rule at 6.5 per cent for March 2013. It said the overall growth outlook for the current year looked “a little better than it was last year.” Accordingly, it projected a GDP growth of 7.3 per cent for the current year.

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