New Delhi: The Reserve Bank of India (RBI) announced its second bi-monthly monetary policy for current fiscal year in Mumbai on Thursday. The central bank cut repo rate by 25 basis points, now at 5.75 per cent from 6 per cent. Meanwhile, adjusting the reverse repo rate and bank rate at 5.50 and 6.0 per cent, respectively.
The decision was announced after the 3-day meeting of the Monetary Policy Committee (MPC), headed by RBI Governor Shaktikanta Das, which began on Tuesday.
The central bank had cut the short-term lending rate (repo rate) by 25 basis points each in its last two policy reviews. Meanwhile, India’s largest bank – State Bank of India (SBI) – in a recent research report had said that the RBI needs to go in for a larger rate cut in the next monetary policy review in June to reverse the current slowdown in the economy.
The third reduction in the benchmark lending rate or repo rate in the last five months is expected to bring down the EMIs on home and auto loans, and reduce the debt repayment burden on corporates. In all, the central bank has reduced the benchmark lending rate by 0.75 percentage point since February this year.
The six-member MPC also lowered its GDP growth forecast to 7 per cent for the current fiscal from 7.2 per cent earlier while marginally increasing its inflation projection to 3-3.1 per cent for the first half of 2019-20, which is within the comfort range of 2-6 per cent set by the government.
“The MPC notes that growth impulses have weakened significantly ? a sharp slowdown in investment activity along with a continuing moderation in private consumption growth is a matter of concern,” the monetary policy resolution passed unanimously said.
“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. Hence, 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,” second bi-monthly monetary policy added.
All the six members of the MPC voted unanimously in favour of a rate cut and also the change in the stance of the policy to “accommodative” from “neutral”, which hints at more such rate cut actions in the offing.
“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 said.
It is to be noted that the GDP growth has moderated to a five-year low of 6.8 per cent for 2018-19 from 7.2 per cent in the previous fiscal.
The central bank also announced doing away with charges on fund transfers through RTGS and NEFT routes to boost digital transactions and asked banks to pass on the benefits to customers.
(Inputs from PTI)