Mumbai:
The six-member monetary policy committee (MPC) of Reserve Bank of India on Friday cut the repo rate by 25 basis points to 5.15%, in line with expectations. The reverse repo rate was reduced to 4.9%.
This was the fifth consecutive rate cut effected by the Shaktikanta Das-led panel, and it was in addition to a cumulative 110 basis points rate cut that RBI has announced so far this year.
On the basis of an assessment of the current and evolving macroeconomic situation, the 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.
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.
The MPC also decided to continue with an accommodative stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target, said RBI.
The central bank also revised the the real GDP growth for 2019-20 downwards from 6.9 per cent in the August policy to 6.1 per cent – 5.3 per cent in Q2:2019-20 and in the range of 6.6-7.2 per cent for H2:2019-20 – with risks evenly balanced.
It also revised GDP growth downwards to 7.2 per cent for Q1:2020-21.
According to the RBI, the monetary transmission has remained staggered and incomplete. As against the cumulative policy repo rate reduction of 110 bps during February-August 2019, the weighted average lending rate (WALR) on fresh rupee loans of commercial banks declined by 29 bps.
However, the WALR on outstanding rupee loans increased by 7 bps during the same period.
In the third bi-monthly resolution of August 2019, CPI inflation was projected at 3.1 per cent for Q2:2019-20, 3.5-3.7 per cent for H2:2019-20 and 3.6 per cent for Q1: 2020-21 with risks evenly balanced.
The actual inflation outcomes for Q2 so far (July-August) at 3.2 per cent have been broadly in line with these projections, said RBI.
The GDP growth for Q1:2019-20 was significantly lower than projected, said RBI.
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 Q3, explained RBI.
India, which is Asia’s third-largest economy, expanded by just 5 per cent in the June quarter, its slowest pace since 2013. That had raised expectations the RBI will be forced to further downgrade its growth projection of 6.9 per cent for the current fiscal year.