RBI Monetary Policy Review: MPC Cuts Interest Rates By 25 Basis Points

RBI Monetary Policy Review: MPC Cuts Interest Rates By 25 Basis Points

Industry's reaction came as the central bank slashed its benchmark lending rate by 0.25 percentage points to 5.15 per cent.

The MPC noted that "accommodative stance will be maintained as long as it is necessary to revive growth while ensuring that inflation remains within the target", leaving room for more rate cuts in future.

RBI took note of the continued slowdown, and lowered India's economic growth projection to 6.1% from 6.9% for FY20.

All the six members of the MPC had voted unanimously for the change in policy rates and stance.

All six members of the monetary policy committee (MPC) voted to lower the repo rate, which is the rate at which the central bank lends to commercial banks, by 25 basis points (bps) to 5.15 percent. Given that growth rate has slumped an action was nearly always expected.

CII Director General Chandrajit Banerjee said the cumulative 135 basis points rate cuts this year along with a slew of measures announced by the government to provide growth stimulus to a variety of sectors is expected to lift growth from its current stupor and unleash animal spirits.

"As soon as this issue came to the central bank's notice, the RBI has acted very swiftly".

For the year, consumer price index or CPI inflation would be at 4%.

According to NAREDCO president Niranjan Hiranandani, there is an expectation of a further 50 basis points repo rate cut in the backdrop of muted inflation which stands lower than the expected 3.2 percent.

Given that the 110 bps rate cut so far has not quite led to the uptick in investment, one can look upon the series of rate cuts as being work in progress to lower the cost of capital gradually over time so that when the investment cycle looks to pick up, potential investors would be comfortable with the rate regime.

Retail inflation inched up to 3.21 percent in August but remained within the RBI's comfort zone. People make huge purchases during Navratras and Diwali.

To revive the faltering economy, the government in September announced a steep cut in the corporate tax rate - to 22 percent from 30 percent - triggering the biggest intraday gain in Indian stocks in more than a decade.

Economists also said the policy transmission process could improve after the RBI mandated banks to link all fresh loans to an external benchmark like the repo rate or the rate on short-term treasury bills since the start of this month.

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