RBI reduces key lending rate by 25 bps

RBI lowers repo rate by 25 basis points to 6% – the second cut in two months

Repo rate is the rate at which the RBI lends money to the commercial banks, in case of any shortfall of funds.

The Monetary Policy Committee (MPC) also chose to maintain the neutral monetary policy stance.

According to Mint, the 25 bps reduction in repo rate between June 30, 2017, and end-December the same year had prompted a 23 bps cut in MCLR.

Also, existing home loan customers may have to wait awhile to see an impact on their EMIs because of the reset date factor.

Consequently, the reverse repo rate stands at 5.75 per cent. Pami Dua, Ravindra Dholakia, Michael Debabrata Patra and Shaktikanta Das voted in favour of the decision to reduce the policy repo rate. Crude oil prices have also risen to about $70 per barrel on production cuts by OPEC and Russian Federation. This is also the first back-to-back rate cut since the Monetary Policy Comittee (MPC) was formed in late 2016.

It expects CPI inflation at 2.4 per cent in January to March and 3.5 per cent to 3.8 per cent in the second half of the fiscal.

RBI Governor Shaktikanta Das said export growth remained weak in January and February 2019.

The last time repo rate was at 6 per cent was in April 2018.

With inflation well below the RBI's mandate of 4 per cent and a push towards the economic activities amid fears of global economic slowdown supported the RBI's move. "You can't operate such a large economy on the basis of data, which nobody knows is correct or not", Rajan had said in a recent interview with Moneycontrol.

"Higher crude oil prices, volatility in worldwide financial markets, the risk of a sudden reversal in the prices of perishable food items, and fiscal slippages are, however, upside risks to the inflation trajectory", the RBI said.

While projecting the gross domestic product (GDP) growth for 2019-20 at 7.2 per cent, the RBI revised downward retail inflation estimate to 2.4 per cent in Q4 FY-19.

GDP (gross domestic product) growth for 2019-20 is projected at 7.2 per cent - in the range of 6.8-7.1 per cent in H1:2019-20 and 7.3-7.4 per cent in H2 - with risks evenly balanced. "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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