New Delhi: In its fifth straight rate cut, the Reserve Bank of India (RBI) lowered key policy rates by 25 basis points Friday as it sought to revive economic growth that slowed to a 6-year low in the first quarter of 2019-20.
This is the first monetary policy announcement after growth fell to 5 per cent in the quarter ended June, taking both the government and the central bank by surprise.
The repo rate now stands at 5.15 per cent.
Acknowledging the persistent economic slowdown, the RBI also lowered the growth forecast for 2019-20 to 6.1 per cent from 6.9 per cent in the previous monetary policy.
With this downward revision, the monetary policy committee (MPC) has cut the growth forecast by 1.3 percentage points since February.
The MPC had projected in February that the economy would grow at 7.4 per cent, but subsequently reduced it to 7.2 per cent in the April review, to 7 per cent in the June review and to 6.9 per cent in the August review.
‘Intensified efforts’
In its statement Friday, the RBI said, “While the recent measures announced by the government are likely to help strengthen private consumption and spur private investment activity, the continuing slowdown warrants intensified efforts to restore the growth momentum.”
It added that with inflation expected to remain below target in the remaining period of this financial year and the first quarter of FY21, there is policy space to address these growth concerns by reinvigorating domestic demand within the flexible inflation targeting mandate.
All six members of the MPC favoured a rate cut — while five, including the RBI representatives, opted for a 25 basis points cut, independent member Ravindra Dholakia favoured a 40 basis points cut.
The inflation remains benign and lower than the 4 per cent mandate and growth has emerged as the more pressing problem for the economy.
The Narendra Modi government has taken a slew of steps in the last month to revive growth including slashing effective corporate tax rates for all firms to 27 per cent.
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