In a major decision on Friday, the Reserve Bank of India (RBI) has cut the repo rate by 25 basis points. In the bi-monthly policy announcement, the RBI, for the fifth consecutive time, has cut the repo rate and adjusted the reserve repo rate and bank rate. From 5.40% earlier, the RBI has decided to keep the repo rate at 5.15%. Additionally, the RBI has decided to keep the Reverse repo rate to 4.90% and bank rate at 5.40 %, accordingly. Making the announcement on October 4, the RBI governor Shaktikanta Das has also said that the RBI will maintain an accommodative policy stance with a view to revive growth. Bringing the repo-rate down to a six-year low, the RBI said that the reduction was necessary to revive growth. With first-quarter GDP growth plunging to 5 percent, the RBI cut its estimate of economic growth in the current fiscal to 6.1 percent from its earlier estimate of 6.9 percent.
Earlier in August, the Reserve Bank cut key interest rates for the fourth consecutive time, as it reduced repo rate by 35 basis points to 5.40 percent to boost the slowing economy. The six-member monetary policy committee (MPC) also maintained the accommodative stance on the monetary policy. Noting that inflation is currently projected to remain within the target over a 12-month ahead horizon, the MPC said since the last (June) policy, domestic economic activity continues to be weak, with the global slowdown and escalating trade tensions posing downside risks.
It said that even as the 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. This is the fourth consecutive time that the RBI has reduced the repo rate. In the earlier three policies, it has reduced the repo rate by 25 basis points each. The RBI also revised real GDP growth for 2019-20 downwards to 6.9 percent from 7 percent in the June policy. CPI inflation is projected at 3.1 percent for the second quarter of FY20 and 3.5-3.7 percent for the second half of FY20, with risks evenly balanced.