Reserve Bank of India (RBI) has reduced the repo rate by 25 basis points (bps) to 6.25% through a unanimous decision of all the six members of the Monetary Policy Committee. In its monetary policy statement, the central bank has underlined that inflation outlook could improve further in the coming months because of a good monsoon and the steps taken by the government to manage
A Crisil report says the good monsoon will push up rural incomes and boost private consumption by 90 bps this fiscal and will support GDP growth. The central bank has retained its 7.6% GVA forecast for FY17. While investments remain weak, business expectations polled in the industrial outlook survey suggest expansion in the next few quarters.
A noteworthy development in RBI’s monetary policy was lowering its real interest rate target to 1.25%, from the 1.5-2% band set by RBI Governor Urjit Patel’s predecessor Raghuram Rajan, clearly indicating that the central bank has now given itself more room to cut rates further. However, monetary transmission in bank loans still remains weak. While RBI has reduced the repo rate by 175 bps from January 2015 to September this year, banks have cut their base rate by only 60 bps and marginal cost of funds based lending rates by 10 bps since it was introduced in April.