No surprises; repo rate cut by 25bps to 6 pc as widely expected

MUMBAI: As widely expected, the Reserve Bank of India (RBI) on Thursday cut the policy rate, repo by 25 basis points from 6.25 bps to 6 per cent even as the CRR was kept unchanged.

Consequently, the reverse repo rate under the LAF stands adjusted to 5.75 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 6.25 per cent.

The RBI said in its note that it expected the headline retail inflation to grow to 3.8 per cent by the fourth quarter of the fiscal year 18-19 and the economy to grow by 7.2 per cent in the current fiscal with the higher growth expected to be witnessed during the second half of H2 compared with the first half.

While four out of the six members that constitute the monetary policy committee (MPC), including the RBI Governor Shakitkanta Das voted in favour of a cut of 25 basis points in the policy rate, two voted against a cut this time.

The MPC noted that the output gap remains negative and the economy is facing headwinds, especially on the global front. All with the exception of Ravindra Dholakia who wanted the Stance to be changed to ‘accommodative’ all others voted to keep the monetary policy Stance Neutral.

This is the second time in a row the policy rate has been cut, each time by 25 basis points, the first being two months back in February after a gap of long 18 months,

Retail inflation, measured by y-o-y change in the CPI, rose to 2.6 per cent in February after four months of continuous decline. The uptick in inflation was driven by an increase in prices of items excluding food and fuel and weaker momentum of deflation in the food group

The path of inflation has been revised downwards to 2.4 per cent for the 4th quarter of 18-19, 2.9 per cent-3 per cent for the first half of 19-20 and further to a higher 3.5 per cent to 3.8 per cent for the second half (H2) with the risks broadly balanced.

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