Muted growth prompts RBI to cut key lending rate to 6%

Key expectations from RBI's Monetary Policy Committee meet this week

Key expectations from RBI's Monetary Policy Committee meet this week

Having moved to the MCLR regime, where a rise in market rates push up the cost of funds for banks and directly determines calculation for lending rates, it is hard to transmit policy actions readily, bankers say.

The six-member committee voted 4:2 for the decision. The central bank kept the policy stance unchanged while the repo rate became 6 per cent from 6.25 per cent earlier.

Das has already held meetings with stakeholders including ahead of the policy announcement.

The last time repo rate was at 6 per cent was in April 2018. The central bank is due to release its first bi-monthly policy statement for financial year 2019-20 at 11.45 am.

Inflation bottomed out at about 2 percent in January before picking up to 2.6 percent in February - still lower than the RBI's forecast of 2.8 percent for the January-March quarter.

The inflation rates for the first half of 2019-20 have been revised keeping in consideration the reduced food inflation during January-February, the fall in fuel inflation, increase in worldwide crude oil prices, inflation expectations of households and assuming a normal monsoon in 2019.

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He also said the RBI has infused liquidity into the system through various instruments and affirmed to use every other instruments available with it in the future as well. The revision was done because actual inflation averaged 2.3 per cent in January-February.

The central bank is monitoring the fiscal situation and will continue to watch the space closely, Das said. The committe will study the best worldwide practices as well as lessons learnt from the global financial crisis, and propose measures to further develop these markets in India by identifying critical steps.

GDP growth for 2019-20 in the February policy was projected at 7.4 percent in the range of 7.2-7.4 percent in H1, and 7.5 percent in Q3 - with risks evenly balanced.

As per Anarpck Consultants, back-to-back repo rate cuts by the RBI are indeed the ideal start to a new financial year, resulting in overall reduction of 50 basis points since February 2019.

Since then, there are some signs of domestic investment activity weakening as reflected in a slowdown in production and imports of capital goods.

This will have a direct impact on the middle class of India, as now, their loans will become cheaper, and EMIs will lower down. "Taking into consideration, higher financial flows to the commercial sector, resilience in private consumption, increase in disposable incomes of households due to tax benefits and optimistic business expectations, growth projection has been lower", it said.

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