The Reserve Bank, in its second bi-monthly monetary policy review, announced the third consecutive rate cut by 25 basis points to 5.75% from current 6.0% with immediate effect, dragging the repo rate to its lowest level since July 2010.
At the end of a three-day MPC meeting, RBI Governor Shaktikanta Das announced its second bi-monthly monetary policy statement (MPC) for 2019-20. In a unanimous decision, the MPC also decided to change the stance of monetary policy from neutral to accommodative.
The MPC comprises of Shaktikanta Das, as its Chairman and members including Chetan Ghate, Pami Dua, Ravindra Dholakia, Michael Debabrata Patra, Viral Acharya. The next MPC meeting is scheduled from 5 to 7 August 2019.
The RBI policy desicion to cut and change of stance are done to give a boost to the sagging economy and rising global uncertainty.
With Repo Rate adjusted to 5.75%, the Reverse Repo Rate under Liquid Adjustment Facility (LAF) stands adjusted to 5.5% and Marginal Standing Facility (MSF) rate and the Bank Rate to 6.0%.
Other revised rates are Cash reserve ratio (CRR) unchanged at 4%, Retail inflation forecast raised marginally to 3% to 3.1% for first half (H1) of 2019-20) and 3.4% to 3.7% second half (H2).
RBI reduced Gross Domestic Product (GDP) growth forecast for financial year 2019-20 is to 7% from 7.2% in April Monetary Policy. This is in range of 6.4% to 6.7% for first half (H1) of 2019-20 and 7.2-7.5% for second half (H2) with risks evenly balanced. This reduced forecast was done taking into account the current weak global demand due to escalation in trade wars and weakened private consumption in rural areas.
In an attempt of increasing digital transactions, RBI decided to do away with charges levied on RTGS and NEFT transactions and banks will be required to pass this benifit to their customers.
The reduced repo rate was welcomed by industry body as this rate cut will encourage banks to lower their lending rates for both retail and corporate credits. This is important as reviving business confidence and consumer confidence in economy.
Repo rate is the rate at which the central bank of a country lends money to commercial banks in the event of any shortfall of funds.It is used by monetary authorities to control inflation.The money can be borrowed for about 7 to 14 days from the Reserve Bank of India.This becomes a floor below which the short-term interest rates don’t go.