In an unprecedented move, the Reserve Bank of India's Monetary Policy Committee (MPC) has cut interest rates by 35 basis points. A CNBC-TV18 poll showed that the market was expecting a 25 basis points cut, but the MPC sprung a surprise with an even dovish cut.

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This is the fourth cut in the key policy rate since Governor Shaktikanta Das took charge of the RBI. The repo rate has fallen from 6.25 percent to 5.4 percent; this is a cut of 110 basis points in the last seven months. With this cut, the repo rate is at its lowest level in the last nine years.

All the six members of the MPC voted unanimously to maintain the accommodative stance. However, only four members including the Governor and the two RBI representatives voted for a 35 basis point cut. Two external members, Pami Dua and Chetan Ghate, voted for a 25 basis point cut.

The governor made it clear that inflation outlook remains benign and growth deserves the highest priority. This was further underscored by the RBI’s growth forecast for the full year which is now below seven percent. The central bank expects growth to fall below the six-percent mark in the first half of this financial year, but growth in the second half could be well above the seven-percent mark with the governor stressing that the onus is on government reforms.

Says Rajnish Kumar, Chairman of State Bank of India (SBI): “As far as SBI is concerned, we have already cut our MCLR by 15 basis points and one-year MCLR is now 8.25 percent. For the working capital loans -- cash credits and overdrafts -- the revised repo-linked lending rate will be 7.65 percent. As and when repo rate is moving, repo-linked lending rate is also moving. It is the same for housing loan also, where we have linked it to the repo-linked lending rate. We introduced this product on July 1. So, straightaway there will be a benefit of 35 basis points.”

Speaking about savings and fixed deposit rates, he said, “The fixed deposit rates were reduced just a week before. We will review the position again in the next ALCO meeting. As far as savings bank rate cut is concerned, already our rate of interest is 3 percent. We will decide this in our next ALCO meeting.”

"SBI is committed to credit growth increase and quite a few enablers have been given in the policy. If the loan rates have to come down, then on the deposit side also real interest rates cannot be very high. They have to be ultimately aligned,” he added.