In a surprise move, the Reserve Bank of India today cut down repo rate by 25 basis points to 7.75 percent from 8 percent, with immediate effect, yielding to growing signs of slowing inflation and a flagging recovery. The RBI has announced this rate cut ahead of its next monetary policy on February 3. This cut in repo rate is likely to reduce interests on various loan.

In a statement, the RBI cited lower-than-expected inflation, weak crude prices and weak demand, as well as the government's commitment to sticking to a fiscal deficit target.
The RBI's move comes after the Wholesale Price Index (WPI) based inflation moved up marginally in December to 0.11 percent from zero level in November, reversing the six month declining trend. The statement said that these developments have provided headroom for a shift in the monetary policy stance.

The statement by the RBI Governor said that inflation outcomes have fallen significantly below the 8 per cent targeted by January 2015. On current policy settings, inflation is likely to be below 6 per cent by January 2016. These developments have provided headroom for a shift in the monetary policy stance.

Responding swiftly to the Reserve Bank's rate cut, state-owned, United Bank of India cut its base rate, or minimum lending rate, by 0.25 per cent, to 10 per cent. The lending rate cut is effective from February 1.