RBI cuts repo by 25 bps to 5.15 pc as expected

Growth forecast for FY20 lowered 80bps to 6.1 pc

MUMBAI: The Reserve Bank of India (RBI) on Friday announced a 25 basis points (bps) cut to 5.15 per cent in its monetary policy committee (MPC) meeting taking the year-to-date (YTD) reduction in repo rate to 135 bps through five cuts.

The reverse repo rate, which is the rate at which banks park funds with RBI, has been cut to 4.9 per cent.

The MPC also maintained its accommodative policy stance this time too, thus giving hints that there is likelihood for further cuts in the coming MPC meeting too.

More importantly, the central bank has lowered its growth forecast for the fiscal year 2019-2020 to 6.1 per cent from 6.9 per cent earlier. Also, the monetary policy committee (MPC) noted that risks to growth have emerged due to weak domestic demand and sagging export prospects on account of continuing trade tensions.

Though the 25bps cut was widely expected by the market, there were business leaders who believed that the rate could be even higher than 25 bps this time too, like what happened during the last MPC meeting that recommended an unconventional 35 basis points.

The MPC noted that “accommodative stance will be maintained as long as it is necessary to revive growth while ensuring that inflation remains within the target,” leaving room for more rate cuts in future.

All the six members of the MPC had voted unanimously for the change in policy rates and stance. While Chetan Ghate, Pami Dua, Michael Debabrata Patra, Bibhu Prasad Kanungo and Shaktikanta Das voted to reduce the repo rate by 25 basis points, Ravindra H. Dholakia voted to reduce the repo rate by 40 basis points.

“While the recent measures announced by the government are likely to help strengthen private consumption and spur private investment activity, the continuing slowdown warrants intensified efforts to restore the growth momentum,” said RBI in its statement.

MPC retained its consumer price inflation forecast for the second half of the fiscal year 2019-202 as expected at 3.5 per cent-3.7 per cent range.

 

 

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