India’s central bank cut its policy repo rate for the fourth time this year and retained its accommodative monetary policy stance in response to slowing economic growth and continued downside risks from “the global slowdown and escalating trade tensions.”
The Reserve Bank of India (RBI) cut its repo rate by a further 35 basis points to 5.40 percent and has now cut the rate by a total of 110 points this year following cuts in June, April and February.
The RBI, which was expected to lower its rate between 25 and 50 basis points, signaled it would be ready to lower rates further to boost economic growth as the inflation outlook remains benign.
“Addressing growth concerns by boosting aggregate demand, especially private investment, assumes the highest priority at this juncture while remaining consistent with the inflation mandate,” RBI said, adding private consumption and investment activity remain “sluggish.”
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Reflecting a contraction of merchandise exports in June and a moderation in industrial production, RBI lowered its forecast for economic growth in the 2019-20 financial year, which began April 1, to 6.9 percent from a previous forecast of 7.0 percent, with risks somewhat to the downside.
India’s gross domestic product has slowed in the last three quarters, with annual growth in the first quarter of this year of 5.8 percent, down from 6.6 percent in the fourth quarter of last year and 7.0 percent in the third quarter of 2018.
For the first quarter of the 2020-21 year, – or the second calendar quarter of 2020 – RBI forecast growth of 7.4 percent.
Low inflation is allowing the RBI to ease its monetary policy stance in an attempt to boost inflation to its target of 4.0 percent, plus/minus 2 percentage points.
In June retail inflation rose to 3.18 percent from 3.05 percent in May but excluding food and fuel inflation was unchanged in June after falling to 4.1 percent in May from 4.6 percent in April.
RBI’s inflation forecast was largely unchanged from June, with headline inflation seen at 3.5-3.7 percent in the second half of the 2019-20 year compared with the previous forecast of 3.4-3.7 percent.
The Reserve Bank of India released the following third bi-monthly monetary policy statement 2019-20 by its Monetary Policy Committee:
- reduce 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 with immediate effect.
- The MPC also decided to maintain the accommodative stance of monetary policy.
Four members (Dr. Ravindra H. Dholakia, Dr. Michael Debabrata Patra, Shri Bibhu Prasad Kanungo and Shri Shaktikanta Das) voted to reduce the policy repo rate by 35 basis points, while two members (Dr. Chetan Ghate and Dr. Pami Dua) voted to reduce the policy repo rate by 25 basis points.