The Reserve Bank of India has delivered another rate cut by 25 basis points, the third consecutive time in a year. The repo rate-the key interest at which the RBI lends to the banks will now be 5.75 per cent. The central bank has also shifted its policy stance from ‘neutral’ to ‘accommodative’.
The move is expected to bring down the loan EMIs(equated monthly instalments). The last time when RBI took the decision to lower interest rates this rapidly was in 2013 to rev up the declining economy from the growth rates that had descended to a decade low.
After the central bank’s Monetary Policy Committee (MPC) concluded its second bi-monthly monetary policy review for 2019-20, the decision to cut rates was announced. Most economists were expecting rate cuts by 25 bps. The decision to reduce the repo rate was unanimous by the Committee. Earlier, the RBI had reduced repo rates from 6.5 per cent to 6 per cent in two stages.
The statement released by the central bank on its website says that the MPC has observed that growth impetus weakened significantly as demonstrated in a further widening of the output gap compared to the April 2019 policy. The has committee has revised both its growth and inflation forecasts for the current fiscal.
The RBI has reassessed the GDP growth downwards to 7% from its earlier estimation of 7.2%. The MPC has maintained that it expects growth to pick up in the second half of FY20, with the first half yielding growth in the range of 6.4-6.7% and 7.2-7.5% in the second half.
The forecast for the Consumer Price inflation for the first half of fiscal year 2019-20 stands at 3-3.1% from 2.9-3% earlier, while the prediction for the second half is revised to 3.4-3.7% from 3.5-3.8% as projected earlier.
The next meeting of the MPC is scheduled to happen between August 5 to 7, 2019.