In a first of sorts, the Reserve Bank of India on Wednesday cut the repo rate by 35 basis points taking in view the “current and evolving macroeconomic situation” with concerns over slowing growth.
This takes the repo rate to 5.4 per cent from 5.75 per cent.
The decision was taken at the third bi-monthly Monetary Policy Committee chaired by RBI Governor Shaktikanta Das. Till now, the RBI has cut rates only in terms of 25 basis points, although Das had recently questioned this rationale.
“The MPC also decided to maintain the accommodative stance of monetary policy. These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth,” the RBI said in a statement.
The MPC has largely maintained its outlook for inflation but has cut the real GDP growth for 2019-20 to 6.9 per cent from the estimate of 7 per cent in the June policy.
Retail inflation is projected at 3.1 per cent for the second quarter of the fiscal and between 3.5-3.7 per cent for the second half of the fiscal, with risks evenly balanced.
It further said the MPC noted that inflation is currently projected to remain within the target over a 12-month ahead horizon. “Since the last policy, domestic economic activity continues to be weak, with the global slowdown and escalating trade tensions posing downside risks,” the RBI said.
“Addressing growth concerns by boosting aggregate demand, especially private investment, assumes the highest priority at this juncture while remaining consistent with the inflation mandate,” it stressed.
All members of the MPC unanimously voted to reduce the policy repo rate and to maintain the accommodative stance of monetary policy.
The RBI has cut repo rates thrice in quick succession with the total reduction at 0.75 per cent. Banks have however, not transmitted the rate cuts fully to borrowers.
The next meeting of the MPC is scheduled during October 1, 3 and 4, 2019.