The Reserve Bank of India’s Monetary Policy Committee led by governor Shaktikanta Das today cut the repo rate by 25 basis points, making it three cuts in a row and bringing it to a nine-year low. With today’s repo rate cut, the RBI MPC has eased the central bank’s monetary and credit policy rates by a cumulative 75 basis points since February. The repo rate, at which banks borrow money from RBI, now stands at 5.75%; and the reverse repo rate, at which banks lend to RBI, is now at 5.5. The CRR — Cash Reserve Ratio — is kept unchanged. The RBI MPC voted unanimously by 6-0 in favour of a 25 basis points policy rate cut. Additionally, the policy stance has also been eased to ‘Accomodative’ from ‘Neutral’.
“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,” RBI said in its monetary and credit policy statement.
The RBI MPC had cut the short-term lending rate or repo rate by 25 basis points each in its last two reviews in February and April. The latest cut today comes at a time when India’s Q4FY19 GDP growth rate fell to a five-year low of 5.8 per cent. Even though inflation has remained very much under control, the liquidity had been in deficit mode for the past few months, raising flags on banks’ ability to continue to lend.
LIVE UPDATE: RBI cuts repo rate to nine-year low as growth worries mount
According to a Reuters poll of 66 economists, two-thirds have predicted that the RBI will cut its repo rate by 25 basis points, bringing it to 5.75% — the lowest since July 2010. Thereafter, the poll also expected the RBI to keep policy rates on hold at least until the end of next year. There were also expectations that the RBI may go beyond 25 bps cut since Shaktikanta Das had recently commented at the annual spring meeting of the World Bank and International Monetary Fund that central banks should not restrict policy rate actions to 25 bps or its multiples.
Also read: RBI Monetary Policy: RBI ने लगातार तीसरी बार सस्ता किया कर्ज, रेपो रेट में 0.25% कटौती; जल्द घट सकती है EMI
Bank of America Merrill Lynch senior economist and Director Indranil Sengupta had predicted a 35 basis points repo rate cut, taking a cue from Shaktikanta Das’ comment. A Bloomberg poll of 43 economists had also anticipated a policy rate cut, with 31 of them predicting the six-member Monetary Policy Committee to cut the repo rate by 25 basis points.