Minutes after the RBI cut the repo rate by 25 basis points, the government welcomed the move taken by the Monetary Policy Committee in its third Bi-Monthly Meeting this fiscal year. While responding to the RBI decision, Department of Economic Affairs secretary SC Garg said, “Government welcomes 25 basis points cut in the repo rate announced today by the MPC in its 3rd Bi-Monthly Meeting”.
We have taken note of the statement of the MPC (Monetary Policy Committee) and its assessment of the inflation and growth outlook,” he said in another statement.
Earlier in the day, the subdued inflation and demand led the central bank to reduce its key policy rate by 25 basis points (bps). As per the third bi-monthly monetary policy review of 2017-18, the short-term lending rate for commercial banks on loans taken from it stood lowered to 6 percent from earlier 6.25 percent.
The six-member MPC led by RBI governor Urjit Patel decided to maintain the policy stance as ‘neutral’. Four members of the committee had supported the reduction the key lending rate. During its last policy review meeting in June, the central bank did not change key lending rates but induced liquidity by reducing Statutory Liquidity Ratio (SLR).
The decision to reduce key lending rates comes after four policy reviews in which RBI maintained status quo on its repo since the central bank reduced it by 25 basis points to 6.25 percent last year in October.
“The decision of the MPC is consistent with a neutral stance of monetary policy 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 plus, minus 2 per cent, while supporting growth,” the third bi-monthly monetary policy statement said.
“The MPC noted that some of the upside risks to inflation have either reduced or not materialised… Consequently, some space has opened up for monetary policy accommodation, given the dynamics of the output gap. Accordingly, the MPC decided to reduce the policy repo rate by 25 basis points,” it added further.