RBI forecasts GDP growth for FY20 at 7.4 %, cuts repo rates by 25 basis points from 6.5% to 6.25%: The Reserve Bank of India (RBI) on Thursday cut repo rate by 25 basis points from 6.5 per cent to 6.25 per cent.
"Consequently, the reverse repo rate under the LAF stands adjusted to 6.0%, and the marginal standing facility (MSF) rate and the Bank Rate to 6.5%", it added.
The 6-member Monetary Policy Committee (MPC), headed by Patel, reduced repo rate or the short term rate at which central bank lends to banks, to 6.25 percent.
But the decision, in a split vote that saw four members of the MPC vote in favour of a 25 basis point cut in the repo rate, deserves a more cautious welcome.
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RBI Governor Shaktikanta Das cut the interest rate by 0.25 percent to 6.25 percent, a move that will lead to reduction of lending rate by banks leading to lower EMI for housing, auto loan and corporate borrowers.
"In the 12-month horizon, if we see that inflation remains at 3.9 or maximum of 4 percent or below, then I think there is a room to act", Das told reporters after Thursday's decision.
"Pronab Sen, former principal adviser of Planning Commission, also believes there is a compelling case for a rate cut now".
India's new RBI governor Shaktikanta Das "has delivered what the Modi government was hoping for", said Mark Williams, chief Asia economist of Capital Economics, in a note. The customary post-Budget board meeting was earlier scheduled for February 9 but has now been deferred.
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The MPC made a decision to cut repo rate in a 4-2 split and unanimously change its stance from calibrated tightening to neutral. Chetan Ghate and Viral V Acharya voted to keep the policy rate unchanged. With headline inflation around 4 percent, the central bank may use policy space to boost growth. Retail inflation, measured by y-o- y change in the CPI, declined from 3.4 per cent in October 2018 to 2.2 per cent in December, the lowest print in the last 18 months.
The Reserve Bank of India (RBI) Governor Shaktikanta Das arrives to attend a news conference after a monetary policy review in Mumbai, February 7, 2019.
The MPC meeting - the first for Das as governor - was closely watched after tension between the RBI and the government prompted his predecessor Urjit Patel to abruptly quit in December, amid government demands to relax lending curbs and hand over surplus reserves.
The Modi government has been pushing for a rate cut by the RBI as it looks to support growth by increasing credit offtake to key sectors of the economy.
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