RBI cuts repo rate by 35 bps, revises GDP growth lower

The Reserve Bank of India (RBI) today cut repo rate for fourth time this year as benign inflation provides the central bank room to help an economy that is growing at its slowest in nearly five years. The RBI's monetary policy committee, led by governor Shaktikanta Das, lowered repo rate by 35% basis points to 5.4%. Almost 80% of 66 economists surveyed by Reuters expected the RBI to cut its benchmark repo rate by 25 bps while three predicted a 50 bps cut.

The RBI also lowered the GDP growth rate for 2019-20 lower to 6.9%, as compared to earlier estimate of 7%.

All members of the MPC unanimously voted to reduce the policy repo rate and to maintain the

accommodative stance of monetary policy.

The last time the RBI made so many back-to-back cuts was after the global financial crisis over a decade ago, when most major central banks were desperate to revive economic growth.

 

A slew of high-frequency indicators - including sliding car sales - suggest the economy is yet to recover from a dismal performance in the first three months of this year, when GDP growth slumped to a five-year low of 5.8%.

Running at 3.18% in June, India's retail inflation has remained below the central bank's medium-term target of 4% for almost a year. Monsoon, after a poor start, has also picked up. Last month, the US Federal Reserve cut interest rate for the first time since global financial crisis. This allows RBI room to retain easing bias, say analysts.

But analysts say that rate cuts alone cannot help India's economy unless the benefits are passed on to consumers and corporate borrowers. Banks, saddled with bad debt, have been slow to reduce lending rates despite the RBI's prodding.

Published on: 07/08/2019Source: Livemint