RBI cuts repo rate for fourth time in a row

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The Reserve Bank of India (RBI), on Wednesday, reduced the repo rate by 35 basis points to 5.40 per cent, its fourth reduction this year, Moreover, the central bank revised the reverse repo rate to 5.15 per cent.

“As announced in the Third Bi-monthly Monetary Policy Statement, 2019-20, today, it has been decided by the Monetary Policy Committee (MPC) to reduce the policy Repo rate under the Liquidity Adjustment Facility (LAF) by 35 basis points from 5.75 per cent to 5.40 per cent with immediate effect,” the statement said.

“Consequently, the Reverse Repo rate under the LAF stands adjusted to 5.15 per cent with immediate effect. All other terms and conditions of the extant LAF Scheme will remain unchanged,” it added.

On Wednesday the MPC voted unanimously to reduce the policy repo rate and to maintain the accommodative stance of monetary policy. As set out in the MPC’s resolution, four members voted for a reduction in the policy repo rate by 35 basis points, while two members voted to reduce the policy repo rate by 25 basis points, it said.

The MPC, headed by Governor Shaktikanta Das cut gross domestic product (GDP) growth target to 6.9 per cent from 7 per cent for the current financial year.

The MPC has revised downwards the projection of real GDP growth to 6.9 per cent for 2019-20 – 5.8-6.6 per cent for first half 2019-20 and 7.3-7.5 per cent for second half- with risks somewhat tilted to the downside, against 7.0 per cent in its June resolution – 6.4-6.7 per cent for first half 2019-20 and 7.2-7.5 per cent for second half – with risks evenly balanced.

The downward adjustment in the GDP growth projection was warranted by various high frequency indicators pointing to weakening of both domestic and external demand conditions. On the other hand, the MPC was of the view that the impact of monetary policy easing since February 2019 is expected to support economic activity, going forward.

In view of these developments and considering that inflation for the first quarter of 2019-20 was in alignment with its June projections, the MPC has retained its inflation projection at 3.1 per cent for second quarter and revised the projection for second half to 3.5-3.7 per cent of the current financial year, with risks evenly balanced, from 3.4-3.7 per cent projected in June. CPI inflation for first quarter: of 2020-21 has been projected at 3.6 per cent.