Repo Rate Falls Below 6% for First Time in 9 Years as RBI Makes Third Cut to Boost Economy

Repo rate is the rate at which the RBI lends money to commercial banks, in case of any shortfall of funds. Consequently, reverse repo rate now stands at 5.50 per cent.

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In a rare 6-0 majority, the Reserve Bank of India (RBI) in its first monetary policy meet after the Narendra Modi government took charge slashed repo rates by 25 basis points to 5.75 per cent.

This is the third consecutive rate cut by the RBI. Repo rate in India is now below 6 percent for the first time since September 2010.

Repo rate is the rate at which the RBI lends money to commercial banks, in case of any shortfall of funds. Consequently, reverse repo rate now stands at 5.50 per cent.

Catering to the long-term demands of consumers, the RBI on Thursday also removed charges levied on NEFT and RTGS transfers. Banks will now have to transfer benefits to users.

Addressing reporters after the meeting, RBI Governor Shaktikanta Das said, “The RBI has decided to set up a Committee involving all stakeholders, under the chairmanship of CEO Indian Banks’ Association (IBA), to examine the entire gamut of ATM charges and fees. Committee to submit its recommendations within two months of its first meeting.”

The MPC also changed its stance from neutral to accommodative, thus recognising the need to boost economic growth. The apex bank also reduced its GDP growth projection from 7.2 percent to 7 percent. The third repo rate cut in a row will immediately spur a growth for sectors like real estate.

Weak global demand due to escalation in trade wars, the RBI feels, may further impact India’s exports and investment activity. The GDP growth projections for 2019-20 was cut to 7 per cent from 7.2 per cent, forecast in the RBI’s meeting in April 2019. The MPC expects growth in the range of 6.4-6.7 percent in the first half of 2019-20 and 7.2-7.5 percent in the second half.

Consumer price inflation forecast for the first half of 2019-20 was revised to 3-3.1 percent from 2.9-3 percent earlier, while the projection for the second half stands revised to 3.4-3.7 percent from 3.5-3.8 percent earlier.

“Risks around the baseline inflation trajectory emanate from uncertainties relating to the monsoon, unseasonal spike in vegetable prices, international fuel prices and their pass-through to domestic prices, geo-political tensions, financial market volatility and the fiscal scenario,” the RBI policy stated.

Members of the MPC include Dr Chetan Ghate, Dr Pami Dua, Dr Ravindra H. Dholakia, Dr Michael Debabrata Patra, Dr Viral V Acharya and Shaktikanta Das.

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