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Why RBI to cut the repo rate by 35 basis points

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The Reserve Bank of India (RBI) at a stretch has to cut for the fourth time, the repo rate by 35 basis points this year taking in views the “current and evolving macroeconomic situation” with rising concerns of slowing growth.

 

Governor Shaktikanta Das, heading the RBI’s monetary policy, has lowered repo rate by 35 percent basis points to 5.4 percent. This takes the repo rate to 5.4 percent from 5.75 percent. The decision on the repo rate was taken during the third bi-monthly Monetary Policy Committee.

 

The RBI said in a statement that, “The MPC also decided to maintain the accommodative stance of monetary policy. These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 percent within a band of +/- 2 percent, while supporting growth.”

 

The MPC has largely maintained its outlook for inflation but has cut the real GDP growth for 2019-20 to 6.9 percent from the estimate of 7 percent in the June policy, as per the statement.

 

The statement further said that, the Retail inflation is projected at 3.1 percent for the second quarter of the fiscal and between 3.5-3.7 percent for the second half of the fiscal, with risks evenly balanced. The MPC has noted that inflation is currently projected to remain within the target over a 12-month ahead horizon. MPC members unanimously voted in order to reduce the repo rate and to balance the accommodative stance of monetary policy.

 

Lastly, the global slowdown and escalating trade tensions posing downside risks,” the RBI said.

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