RBI cuts repo rate by 25 basis points to 5.75%; GDP growth forecast lowered

The six-member monetary policy committee (MPC), headed by RBI Governor Shaktikanta Das, announced the second bi-monthly monetary policy of this fiscal today.

New Delhi, June 06: The Reserve Bank of India (RBI) today cut the repo rate by 25 basis points. The repo rate has been reduced from 6 percent to 5.75 percent. The repo rate has been slashed for the third time in a row

Repo rate is the interest rate at which the RBI lends money to banks. The Reverse repo rate and the bank rate have been adjusted at 5.50 and 6.0 percent, respectively.

The current policy repo rate is at 6 percent, while retail inflation stood at 2.92 percent in April. RBI's MPC has so far reduced the repo rate by a cumulative 50 bps since the start of 2019

The six-member monetary policy committee (MPC), headed by RBI Governor Shaktikanta Das, announced the second bi-monthly monetary policy of this fiscal today.

"RBI will not hesitate to take any measure which is required to maintain the financial stability of the system including, shot-term, medium-term and long term," Das said.

Many experts were expecting RBI to cut the rates by at least 25 basis points.

From December 2018 to February 2019, the Repor Rate was 6.5 percent. On February 7, the RBI reduced Repo rate by 25 basis points, and reduced it to 6.25 percent from 6.5 percent. In the next monetary policy announce emnt in April this year, it was further reduced to 6.0 percent.

In December last year, the RBI had kept repo rate unchanged at 6.5 per cent.

Further, RBI today announced that it has decided to do away with charges levied on RTGS and NEFT transactions, and asked banks to pass this benefit to their customers.

GDP growth forecast lowered:

The Reserve Bank of India Thursday lowered the econo mic growth forecast for the current fiscal to 7 per cent due to slowdown in domestic activities and escalation in global trade war.

In the April monetary policy, the growth of Gross Domestic Product (GDP) for 2019-20 was projected at 7.2 per cent - in the range of 6.8-7.1 per cent for the first half of the fiscal and 7.3-7.4 per cent for the second part - with risks evenly balanced.

Data for January-March quarter:2018-19 indicate that domestic investment activity has weakened and overall demand has been weighed down partly by slowing exports, the RBI said after the meeting of the Monetary Policy Committee (MPC), which decides on key policy rates.

Weak global demand due to escalation in trade wars may further impact India's exports and investment activity, it added. Further, private consumption, especially in rural areas, has weakened in recent months.

Also read:RBI cuts repo rate by 25 bps for third time in 2019, loans may get cheaper

However, on the positive side, political stability, high capacity utilisation, the uptick in business expectations in the second quarter, buoyant stock market conditions and higher financial flows to the commercial sector augur well for investment activity, the RBI added.

Taking into consideration these factors and the impact of recent policy rate cuts, "GDP growth for 2019-20 is revised downwards from 7.2 per cent in the April policy to 7.0 per cent - in the range of 6.4-6.7 per cent for H1:2019-20 and 7.2-7.5 per cent for H2 - with risks evenly balanced", said the central bank.

India's exports were unable to sustain the growth of 11.8 per cent observed in March 2019 and grew by 0.6 per cent in April 2019 dragged down by engineering goods, gems and jewellery, and leather products.

Tariff wars between the US and China has impacted global trade and and financial markets.

As per the Central Statistics Office (CSO), India's GDP slowed to a five-year low of 5.8 per cent in January-March quarter of 2018-19. The annual growth during the last fiscal at 6.8 per cent too was at a five year low.