RBI cuts Repo Rate by 35 basis points; lowers GDP growth forecast to 6.9 percent

RBI cuts Repo Rate by 35 basis points; lowers GDP growth forecast to 6.9 percent

Reserve Bank of India (RBI) cuts repo rate by 35 basis points (bps) in its third bi-monthly policy review of the financial year 2019-20. It was RBI’s fourth continues rate cut in a row. Six-member Monetary Policy Committee (MPC) of the RBI decided to cut the repo rate on the basis of an assessment of the current and evolving macroeconomic situation.

As per the information released by RBI, CPI inflation is projected at 3.1% for Q2 FY20 and 3.5-3.7% for H2 FY20. The MPC led by RBI Governor Shaktikanta Das decided to:

• Reduce the policy repo rate under the liquidity adjustment facility (LAF) by 35 basis points (bps) from 5.75 per cent to 5.40 per cent with immediate effect.
• Consequently, the reverse repo rate under the LAF stands revised to 5.15%, and the marginal standing facility (MSF) rate and the Bank Rate to 5.65%.
• The MPC also decided to maintain the accommodative stance of monetary policy.

Decisions of the Monetary Policy Committee (MPC)

GDP estimate: MPC said in a statement that GDP growth for 2019-20 is revised downwards from 7.0 per cent in the June policy to 6.9%.

Inflation expectations: It has remained unchanged in the July 2019 round of the Reserve Bank’s survey for the three months ahead horizon as compared with the previous round, but they moderated by 20 basis points for the one year ahead horizon.

CPI Inflation: As per the information released by the Reserve Bank of India CPI inflation is projected at 3.1% for Q2 FY20 and 3.5-3.7% for H2 FY20.

Accommodative Stance: The RBI has maintained its accommodative stance on the policy. All members of the committee voted to maintain accommodative stance.

Voting by members: Four members (Dr. Michael Debabrata Patra, Dr. Ravindra H. Dholakia, Bibhu Prasad Kanungo and Shaktikanta Das) voted to reduce the policy repo rate by 35 basis points, while two members (Dr. Chetan Ghate and Dr. Pami Dua) voted to reduce the policy repo rate by 25 basis points.

Repo Rate

It is a rate at which all other banks borrow funds from the Reserve Bank of India (RBI).

Reverse Repo Rate

It is the rate at which RBI or central bank of a country borrows funds from commercial banks within the country.

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