MUMBAI: The Reserve Bank of India (RBI ) on Friday cut interest rates for a fifth straight meeting, stepping up efforts to kickstart economic growth languishing at six-year lows. The RBI maintained its “accommodative” stance and said that it would maintain this position “as long as it is necessary” to revive growth while ensuring inflation remains within the target.
The six-member monetary policy committee (MPC) of the RBI cut the repo rate by 25 basis points to 5.15%, in line with expectations. The reverse repo rate was reduced to 4.9%.
”Repo rate has been cut by 25 basis points, from 5.40% to 5.15%. The reverse repo rate has been adjusted to 4.90% and bank rate at 5.40 %, accordingly” the apex bank said.
While admitting that India was facing a big economic slowdown, RBI also revised the gross domestic product (GDP) growth for 2019-20 downwards from 6.9 per cent in the August policy to 6.1 per cent.
For 2020-21, the GDP outlook has been revised to 7.2%,” it said.
The fourth bi-monthly monetary policy for 2019-20 was announced by RBI Governor Shaktikanta Das-headed Monetary Policy Committee (MPC) after its three-day marathon meeting.
As a result of the rate cut, the reverse repo rate under the liquidity adjustment facility (LAF) is now 4.90 per cent, and the marginal standing facility (MSF) rate and the Bank Rate will be 5.40 per cent, RBI Governor Shaktikanta Das said.
“The MPC also decided to continue with an accommodative stance as long as it is necessary to revive growth while ensuring that inflation remains within the target,” the police statement issued by the bank said.
According to experts, the central bank’s move to cut rates will complement the government’s measures like reducing corporate tax and promoting credit offtake to boost economic activity during the festive season amid a slowdown.
The RBI Governor had earlier hinted that benign inflation provides room for further monetary policy easing while space for fiscal space is limited.
The government has recently announced a series of measures including the steepest cut in corporate tax, the rollback of enhanced surcharge on Foreign Portfolio Investors, among others to jump-start growth which hit a six-year low of 5 percent during the first quarter of the current fiscal.
Asia’s third-largest economy expanded by just 5 percent in the June quarter, its slowest pace since 2013. That has raised expectations the RBI will be forced to further downgrade its growth projection of 6.9 percent for the current fiscal year.
The central bank had already slashed repo rate four times consecutively this year amounting to 110 basis points in aggregate. At its last meeting in August, the Monetary Policy Committee (MPC) reduced the benchmark lending rate by an unusual 35 basis points to 5.40 percent.
The RBI has been mandated by the government to ensure that inflation remains below 4 percent, with a deviation of 2 percent on either side.
Experts and industry feel low inflation provides enough headroom for the RBI to further lower the policy rate, especially when the festive season has just started. People make huge purchases during Navratras and Diwali.