RBI cuts repo rate by 25 basis points to 5.15%

Monetary policy review RBI set to cut rate. Question is by how much

"Cumulative reduction of 135 basis points in repo rate, along with the recent cut in corporate tax by the government, should help revive growth in the coming months", said Zarin Daruwala, CEO, India, Standard Chartered Bank. The six-member monetary policy committee (MPC) headed by Governor Shaktikanta Das also chose to maintain the accommodative stance of monetary policy.

Consequently, the reverse repo rate under liquidity adjustment facility stands reduced to 4.9 per cent, and the marginal standing facility (MSF) rate and the bank rate to 5.4 per cent.

Inflation in August accelerated to a 10-month high but remained well below the central bank's medium-term target of 4% for a 13th straight month.

Further, the Reserve Bank's Monetary Policy Committee continued its accommodative stance.

HSBC also expects another 25 bps rate cut in December, taking the repo rate to 4.9 percent. The recent measures include the steepest cut in corporate tax, the rollback of enhanced surcharge on Foreign Portfolio Investors, and more to jump-start growth which hit a six-year low of 5% during the first quarter of the current fiscal. For 2020-21, RBI has revised the GDP outlook to 7.2%.

Mumbai: How a lot decrease can India's central financial institution drive rates of interest after delivering 5 back-to-back cuts?

"Noting that the output gap has widened since its last meeting, the MPC was of the view that the continuing slowdown warrants intensified efforts to restore the growth momentum.as long as the growth momentum remains as it is and till the growth is revived, RBI will continue to remain in an accommodative mode", Shaktikanta Das, Governor, RBI, said in the post-policy interaction with the media.

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The central bank had already slashed repo rate four times consecutively this year amounting to 110 basis points in aggregate.

Inflation forecast for the second half of FY20 has been retained at 3.5-3.7%. One member voted for a 40 basis point cut, while the others opted for a quarter-point easing.

On the farm sector, the MPC resolution said, "prospects of agriculture have brightened considerably, positioning it favourably for regenerating employment and income, and the revival of domestic demand".

The cuts were in line with analyst expectations, according to a Reuters poll.

Retail inflation measured by year-on-year changes in the CPI moved in a narrow range of 3.1 to 3.2 per cent between June and August. The reverse repo rate is the rate at which the central bank borrows money from commercial banks.

On the regulation and supervision front, the RBI made a decision to increase the household limits for micro-lenders' borrowers, and also raise the cap to Rs 1.25 lakh per eligible borrower from the previous Rs 1 lakh.

Thomas John Muthoot, CMD of the Muthoot Pappachan group said that the Friday rate cut offered "the much needed respite".

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