The Reserve Bank of India’s monetary policy committee on Thursday announced a 25 basis points cut in key policy rates with an expected change in policy stance to accommodative from neutral.
The repo rate stands reduced to 5.7% from 6% earlier and the reverse repo rate stands adjusted to 5.5%.
The MPC noted that growth has weakened significantly as reflected in a further widening of the output gap compared to the April 2019 policy. A sharp slowdown in investment activity along with a continuing moderation in private consumption growth is a matter of concern, it noted.
The MPC revised both its growth and inflation forecasts for the current fiscal year. GDP growth has been revised downwards to 7% from the earlier projection of 7.2%. The MPC expects growth in the range of 6.4-6.7% in the first half of 2019-20 and 7.2-7.5% in the second half.
Consumer price inflation forecast for the first half of 2019-20 was revised to 3-3.1% from 2.9-3% earlier, while the projection for the second half stands revised to 3.4-3.7% from 3.5-3.8% 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.
The MPC members unanimously decided to reduce the policy rate and also change the monetary policy stance.