RBI cuts repo rate by 25 basis points to 5.75 pc, shifts policy stance to accommodative

Mumbai (Maharashtra) [India], June 6 (ANI): The Reserve Bank of India (RBI) on Thursday cut repo rate for the third consecutive time this year to 5.75 per cent from the current 6 per cent amid falling economic growth and uncertain global scenario.
The six-member monetary policy committee (MPC) headed by Governor Shaktikanta Das kept cash reserve ratio (CRR) unchanged at 4 per cent in its second meeting for the fiscal year 2019-20.
"Growth impulses have weakened significantly as reflected in a further widening of the output gap compared to the April 2019 policy. A sharp slowdown in investment activity along with a continuing moderation in private consumption growth is a matter of concern," said Das after the meeting.
"The headline inflation trajectory remains below the target mandated to the MPC even after taking into account the expected transmission of the past two policy rate cuts," he said.
"Hence, there is scope for the MPC to accommodate growth concerns by supporting efforts to boost aggregate demand, and in particular, reinvigorate private investment activity, while remaining consistent with its flexible inflation targeting mandate," said Das.
All members - Chetan Ghate, Pami Dua, Ravindra Dholakia, Michael Debabrata Patra, Viral Acharya and Shaktikanta Das - unanimously decided to reduce the policy repo rate and change the stance of monetary policy from neutral to accommodative.
On February 7 and April 4, the central bank had reduced the key lending rate by 25 basis points to infuse liquidity and push growth.
Repo rate is the rate at which the RBI lends money to commercial banks. A repo rate cut allows banks to reduce interest rates for consumers on loans, and lowers equal monthly instalments on home loans, car loans, and personal loans.
The central bank also lowered its growth forecast for the economy for 2019-20. Weak global demand due to escalation in trade wars may further impact India's exports and investment activity, the RBI said.
"Taking into consideration the above factors and the impact of recent policy rate cuts, GDP growth for 2019-20 is revised downwards from 7.2 per cent in the April policy to 7 per cent -- in the range of 6.4 to 6.7 per cent for H1:2019-20 and 7.2 to 7.5 per cent for H2 - with risks evenly balanced."
India's economy grew just 6.8 per cent in 2018-19, according to government data. In the fourth quarter (January to March), the growth dipped to 5.8 per cent, marking a five-year low.
Meanwhile, headline inflation stood at 2.9 per cent year-on-year in April, below the RBI's target of 4 per cent.
Industry leaders say a substantial cut in the repo rate and bank lending rates are needed to boost manufacturing and domestic demand and bolster economic growth.
However, there is another concern among government officials that commercial banks with massive bad debts and weak deposit growth are not automatically passing through the RBI's repo rate cuts to borrowers.
A worrying factor for the new government led by Prime Minister Narendra Modi is the unemployment rate. Recent data showed that it stood at 6.1 per cent -- the highest in 45 years.
More measures to create new jobs and put the economy on a high growth path are likely to be unveiled in the full Union Budget for 2019-20 which will be announced by Finance Minister Nirmala Sitharaman on July 5.
(ANI)