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finance | IST

RBI Monetary Policy: Reserve Bank of India cuts repo rate by 25 bps, changes policy stance to “accommodative”

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The Reserve Bank of India (RBI) cut its policy interest rate by 25 basis points on Thursday, in a widely expected move and shifted its policy stance to “accommodative” from “neutral” to boost a slowing economy. The six-member monetary policy committee (MPC) cut the repo rate to 5.75 percent as predicted by all 5 economists polled by CNBC-TV18 last week.

The Reserve Bank of India (RBI) cut its policy interest rate by 25 basis points on Thursday, in a widely expected move and shifted its policy stance to “accommodative” from “neutral” to boost a slowing economy.
The six-member monetary policy committee (MPC) cut the repo rate, or the rate at which the RBI lends money to commercial banks, to 5.75 percent as predicted by all 5 economists polled by CNBC-TV18 last week.
Today's RBI meeting is third in a row since February that the central bank has cut interest rates. The last time it moved this quickly to lower rates was in 2013 to revive the moribund economy from growth rates that had slipped to a decade low.
Following a meeting of its monetary policy committee (MPC), the RBI highlighted the need to boost domestic growth due to global headwinds.
All of six MPC members voted for a 25 basis point cut and called for the change in policy stance to “accommodative” from “neutral”.
One basis point is a hundredth of a percentage point.
"The unanimous vote reflects the resolve of the Monetary Policy Committee (MPC) to act decisively and act in time," RBI Governor Shaktikanta Das said in a press conference after the policy announcement.
The MPC drew comfort from subdued inflation. Running at 2.92 percent annually in April, it has stayed below the medium-term target of 4 percent for the past nine months.
"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," the RBI said in its policy statement.
While the central bank projected retail inflation between 3.4 percent and 3.7 percent by the second half of fiscal 2019— it also warned of the upside risks to price pressures due to delay in monsoon, unseasonal spikes in vegetable prices, international fuel prices and geo-political tensions.
The central bank also raised concerns regarding the slowdown in investment activities.
"A sharp slowdown in investment activity along with a continuing moderation in private consumption growth is a matter of concern," it said.
The RBI also revised GDP growth for FY20 downwards to 7 percent versus 7.2 percent projected earlier.
The cut in economic growth comes after data out on Friday showed annual economic growth running at 5.8 percent in the January-March quarter, sharply down from 6.6 percent in the previous quarter, well below forecasts and the slowest in more than four years.
The 10-year benchmark bond yield fell to 6.91 percent from 7.01 percent before the rate decision and the rupee advanced to 69.38 per dollar from 69.42. The broader NSE Nifty was down 0.55 percent, or 66 points, at 11,955.60 points.
The next meeting of the MPC is scheduled during August 5 to 7, 2019.