RBI reduces repo rate by 35 bps to 5.40%

07 Aug 19 2 min read

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RBI governor Shaktikanta Das addressing a press conference after the announcement of Third Bi-Monthly Monetary Policy 2019-20. Pic: YouTube/RBI

On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI), in its Third Bi-monthly Monetary Policy Statement, 2019-20, has reduced the policy repo rate under the liquidity adjustment facility (LAF) by 35 basis points (bps) from 5.75 per cent to 5.40 per cent.

Consequently, the reverse repo rate under the LAF stands revised to 5.15 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 5.65 per cent with immediate effect.

The MPC also decided to maintain the accommodative stance of monetary policy.

The MPC's decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth, an RBI press release said.

"The MPC notes that inflation is currently projected to remain within the target over a 12-month ahead horizon. Since the last policy, domestic economic activity continues to be weak, with the global slowdown and escalating trade tensions posing downside risks. Private consumption, the mainstay of aggregate demand, and investment activity remain sluggish. Even as past rate cuts are being gradually transmitted to the real economy, the benign inflation outlook provides headroom for policy action to close the negative output gap. Addressing growth concerns by boosting aggregate demand, especially private investment, assumes the highest priority at this juncture while remaining consistent with the inflation mandate," the release said.

Welcoming the MPC's decision, Tiruppur Exporters' Association (TEA) president Raja M Shanmugham said he hoped that all banks will come forward to pass on the reduction of interest rate to the borrowing units, which is desperately required for the knitwear garment exporting units, particularly to MSME exporting units which are suffering further to macroeconomic changes.

"Banks have reduced their Weighted Average Lending Rates (WALRs) on fresh rupee loans only by 0.29 per cent during the current easing phase so far (February-June 2019), while RBI reduced the repo rates by 0.75 period during this period. Despite the meetings RBI governor had with banks asking them to transmit the reduction, one or two banks only reduced their rates," Shanmugham said in a statement. (RKS)

Fibre2Fashion News Desk – India

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