Published: Fri, October 04, 2019
Economy | By

RBI Monetary Policy Review: MPC Cuts Interest Rates By 25 Basis Points

RBI Monetary Policy Review: MPC Cuts Interest Rates By 25 Basis Points

The reduction in key policy rate by the RBI is expected to revive investment and encourage consumption, thereby kick-starting the sluggish economy, India Inc said on Friday.

As a result of the rate cut, the reverse repo rate under the liquidity adjustment facility (LAF) is now 4.90 per cent, and the marginal standing facility (MSF) rate and the Bank Rate will be 5.40 per cent, RBI Governor Shaktikanta Das said. "The reverse repo rate has been adjusted to 4.90% and bank rate at 5.40 %, accordingly" the apex bank said.

The Narendra Modi government has taken a slew of steps in the last month to revive growth including slashing effective corporate tax rates for all firms to 27 per cent.

- Indian stocks erased morning gains to end over 1 percent lower on Friday after the Reserve Bank of India (RBI) reduced FY20 GDP growth target to 6.1 percent from 6.9 percent.

Looking at the cumulative cuts in repo rates in the past, the highest cumulative rate cut in one calendar year, was in 2002, when rates were lowered by 300 bps.

"RBI will not allow any co-operative bank to collapse", said Mr Das at a press conference after the Reserve Bank of India's monetary policy committee announced repo rate cut of 25 basis points.

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The GDP growth forecast for the current fiscal has lowered to 6.1 per cent from 6.9 per cent earlier.

Given the concerns on growth and inflation remaining within the target levels, a majority of analysts were expecting the RBI to cut rates at the policy review meet.

All MPC members also voted in favour of continuing an accommodative stance towards monetary policy, the statement said, implying that more cuts could be on the way.

The economy expanded by just 5% in the June quarter, its slowest pace since 2013, on the back of low consumer demand and a slowdown in government spending amid global trade frictions.

The RBI has been mandated by the government to ensure that inflation remains below 4 percent, with a deviation of 2 percent on either side. Economists feel that this coupled with the "accommodative stance" makes a series of rate cuts through FY20 highly likely.

Banking sector crisis Yet, growth is not the only worry RBI has.

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