The RBI on Friday slashed the repo rate by 25 basis points (bps) to 5.15%, which takes its aggregate cut this year to 135 basis points. This is the 5th straight rate cut from the apex bank and has led to an overall decline of 1.35% point in the key lending rate. The RBI also cut its Gross Domestic Product growth estimates from 6.9% to 6.1%.
According to TOI, the central bank has maintained its accommodative stance; the reverse repo rate stood at 4.90%. While briefing the media, RBI governor Shaktikanta Das said, “The Reserve Bank will continue the ‘accommodative’ stance as long as it is required to revive the growth.”
Economist polled by Reuters expected a 25 bps cut. India’s economy expanded merely 5% in the June quarter, its slowest speed since 2013. In an attempt to revive the slowing growth, the government declared a sharp cut in the corporate tax rate, from 30% to 22%.
In August, retail inflation accelerated to a ten-month high but remained well below the RBI’s mid-term target of 4% for the 13th month. The MPC moved up the September quarter expectations slightly higher to 3.6% but retained its projection for the 2nd half of the fiscal at 3.5-3.7%.
The Reserve Bank of India had earlier made it compulsory for banks to link all new auto loans and floating rate home to an external benchmark like the repo rate or the rate on short-term treasury bills since the beginning of this month.
The Monetary Policy Committee (MPC) comes in the backdrop of RBI’s decree to banks to link their loan products to an external benchmark for quicker transmission of reduction in policy rates to borrowers, from 1st October. The next meeting of MPC is scheduled at the start of December 2019.