The Reserve Bank of India on Friday lowered the repo rate by 25 basis points to 5.15 per cent, the fifth consecutive reduction in the repo rate so far this year.
“On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) at its meeting today decided to reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 5.15 per cent from 5.40 per cent with immediate effect, the statement said.
Consequently, the reverse repo rate under the LAF stands reduced to 4.90 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 5.40 per cent, it said.
These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth, it added.
In the third bi-monthly resolution of August 2019, CPI inflation was projected at 3.1 per cent for second quarter:2019-20, 3.5-3.7 per cent for second half:2019-20 and 3.6 per cent for first quarter: 2020-21 with risks evenly balanced. The actual inflation outcomes for second quarter so far (July-August) at 3.2 per cent have been broadly in line with these projections, the statement said.
Turning to the growth outlook, real GDP growth for 2019-20 in the August policy was projected at 6.9 per cent – in the range of 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; GDP growth for quarter one:2020-21 was projected at 7.4 per cent, it said.
Various high frequency indicators suggest that domestic demand conditions have remained weak. The business expectations index of the Reserve Bank’s industrial outlook survey shows muted expansion in demand conditions in quarter three.
Export prospects have been impacted by slowing global growth and continuing trade tensions. On the positive side, however, the impact of monetary policy easing since February 2019 is gradually expected to feed into the real economy and boost demand. Several measures announced by the Government over the last two months are expected to revive sentiment and spur domestic demand, especially private consumption, RBI said in its release.
Taking into consideration the above factors, real GDP growth for 2019-20 is revised downwards from 6.9 per cent in the August policy to 6.1 per cent – 5.3 per cent in Quarter two :2019-20 and in the range of 6.6-7.2 per cent for H2:2019-20 – with risks evenly balanced; GDP growth for quarter one:2020-21 is also revised downwards to 7.2 per cent, it said.
All members of the MPC voted to reduce the policy repo rate and to continue with the accommodative stance of monetary policy, it added.