New Delhi: The RBI cut its key lending rate by another 25 basis points (bps) in view of both low inflation and slowing industrial production on Thursday- from 6.25 to 6 per cent. The RBI now projects GDP growth for 2019-20 at 7.2 per cent as opposed to an earlier figure of 7.4 per cent. Also Read - Bank Resolution Framework Changes Credit Positive: Moody's
At its final bi-monthly policy review of the last fiscal in February, the central bank’s Monetary Policy Committee (MPC), presided over for the first time by bank Governor Shaktikanta Das, voted to lower its repo, or short-term lending rate for commercial banks, by 25 bps to 6.25 per cent. It was the first repo cut in one and a half years. Also Read - RBI to Conduct Special 'Open Market Operations' to Pump up Liquidity
At the same time, the RBI changed its monetary policy stance from one of “calibrated tightening” to “neutral”. While the MPC delivered a surprise repo rate cut in a 4-2 split vote, members unanimously agreed to the change in policy stance.
In terms of inflation, both retail and wholesale prices have shown a declining trend on a year-on-year basis.
Besides, there has been a sharp decline in manufacturing output, which slowed industrial production in January to 1.7 per cent.
The stock markets surged on Monday on expectations of an RBI rate cut. The benchmark Sensex hit an all-time high crossing the 39,000-mark during early trade on Monday.
“Pre-election rally extended to the new financial year with an increase in prospects of political stability, rate cut expectation from RBI and improvement in GST collection in March,” said Vinod Nair, Head of Research, Geojit Financial Services.
In February, the apex bank in a surprise move brought down home and auto loans as it went the whole hog by not only lowering its key lending rate by 25 bps to 6.25 per cent, but also turned accommodative, changing its monetary policy stance from “calibrated tightening” to “neutral”.
Later during the month, the MPC minutes revealed that weak growth impulses along with expectations of slipping food and fuel prices led the RBI to cut its key lending rate.