The Reserve Bank of India cut the repo rate by 25 basis points for a third consecutive time on Thursday and also shifted its stance to accommodative from neutral amidst concerns about slowing growth.
“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 5.75 per cent from 6 per cent with immediate effect,” the RBI said after the second bi-monthly meeting of the MPC for 2019-20.
The reverse repo rate under the LAF stands adjusted to 5.50 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 6.0 per cent.
Repo rate is the interest rate at which the central bank provides liquidity to banks to overcome short-term liquidity mismatches.
Read here the Second Bi-monthly Monetary Policy Statement, 2019-20
It has cut the GDP growth forecast for 2019-20 from 7.2 per cent in the April policy to 7.0 per cent – in the range of 6.4-6.7 per cent for first half of the fiscal and 7.2-7.5 per cent for the second half – with risks evenly balanced.
“The MPC notes that growth impulses have weakened significantly as reflected in a further widening of the output gap compared to the April 2019 policy,”it said, adding that a sharp slowdown in investment activity along with a continuing moderation in private consumption growth is a matter of concern.
The MPC also revised the retail inflation forecast to to 3.0-3.1 per cent for the fist half of the fiscal 2019-20 and to 3.4-3.7 per cent for the second half.
“The headline inflation trajectory remains below the target mandated to the MPC even after taking into account the expected transmission of the past two policy rate cuts”, said the MPC led by RBI Governor Shaktikanta Das, adding that there is accordingly there is scope for the MPC to accommodate growth concerns by supporting efforts to boost aggregate demand, and in particular, reinvigorate private investment activity, while remaining consistent with its flexible inflation targeting mandate.
