With inflation concerns easing, the Reserve Bank of India on Thursday cut the repo rate by 25 basis points to 6.25 per cent and changed the monetary policy stance from calibrated tightening to neutral.
Consequently, the reverse repo rate under the LAF stands adjusted to 6.0 per cent, and the marginal standing facility rate and the Bank Rate to 6.5 per cent.
The decisions were taken at the sixth bi-monthly meeting of the Monetary Policy Committee of the RBI chaired under RBI Governor Shaktikanta Das. This was the first MPC meeting under Das, who took over from Urjit Patel.
The committee voted 4:2 in favour of the rate cut but was unanimous on change in stance. “The decision to change the monetary policy stance was unanimous,” the RBI said in a release after the meeting.
Deputy Governor Viral Acharya and another MPC member, Chetan Ghate, voted for status quo in interest rates, while Das and three others voted for a cut in interest rates.
Inflation outlook
It has revised downwards the path of retail inflation to 2.8 per cent in the fourth quarter of the fiscal, 3.2-3.4 per cent in the first half of 2019-20 and 3.9 per cent in the third quarter of 2019-20, with risks broadly balanced around the central trajectory.
“Headline inflation is projected to remain soft in the near term reflecting the current low level of inflation and the benign food inflation outlook,” the statement said, but cautioned that beyond the near term, some uncertainties warrant careful monitoring such as volatile vegetable prices, crude oil prices and trade tensions.
The short-term outlook for food inflation appears particularly benign, despite adverse base effects. Also, the moderation in the fuel group was larger than anticipated, it added. The Reserve Bank’s surveys showed that inflation expectations of households as well as input and output price expectations of producers have moderated significantly.
GDP outlook
It has projected GDP growth for 2019-20 is projected at 7.4 per cent – in the range of 7.2-7.4 per cent in the first half, and 7.5 per cent in the third quarter.
The MPC noted that that the output gap has opened up modestly as actual output has inched lower than potential. “Investment activity is recovering but supported mainly by public spending on infrastructure,” it said, adding that the need is to strengthen private investment activity and buttress private consumption.
Budget proposals
It said the interim budget proposals will boost demand by raising disposable incomes but may take time to play out.
Other important decisions
The RBI has raised the limit of collateral-free agriculture loans to Rs 1.6 lakh from the current Rs 1 lakh.
(With inputs from Agencies)