RBI Monetary Policy: MPC cuts repo rate by 25 bps to 5.15%, cuts FY20 GDP target to 6.1%

The Reserve Bank of India has cut its benchmark repo rate by 25 basis points to 5.15 percent, in the fifth straight interest rate cut.

The Reserve Bank of India (RBI) has cut its repo rate by 25 basis points to 5.15 percent in a bid to boost the flow of credit and support economic growth.

One basis point is a hundredth of a percentage point.

The central bank also decided to continue with an accommodative stance “as long as it is necessary” to revive growth, while ensuring inflation remains within the target.

All members of the Monetary Policy Committee (MPC), that met on October 4 to review interest rates, voted to reduce the policy rate, the RBI said.

With this cut, the repo rate, which serves as the MPC’s policy rate, has been reduced for the fifth consecutive time this year. However, banks have passed on only a fraction of these cuts.

Since October 1, banks have linked their home, vehicle and SME loans to RBI’s repo rate for quicker transmission of policy rate action. Most banks that have launched repo rate-linked products are likely to offer home and vehicle loans at cheaper rates to attract new borrowers.

The RBI said that while these measures are likely to help strengthen private consumption and spur private investment activity, the continuing slowdown warrants intensified efforts to restore the growth momentum.

The Indian economy grew at the pace of 5 percent in the June-ended quarter, it’s slowest since 2013. This triggered a slew of measures by the government and the central bank in past few months, including a corporate tax rate cut and setting up loan melas to encourage fresh investments.

Inflation has remained well within the MPC’s target of 4 percent for the past 13 months, giving room for the central bank to respond with policy rate cuts.

“With inflation expected to remain below target in the remaining period of 2019-20 and first quarter of 2020-21, there is policy space to address these growth concerns by reinvigorating domestic demand within the flexible inflation targeting mandate,” RBI said.

The MPC was largely expected to vote in the favour of a rate cut and back government’s efforts to address the current economic slowdown.The MPC is next scheduled to meet during December 3-5, 2019.

Source: Moneycontrol

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