RBI’s monetary policy committee (MPC), led by Governor Shaktikanta Das, on Thursday announced a 25 basis points cut in the short-term lending rate, popularly known as REPO RATE  or repurchase rate. The repo rate now stands at 6% p. a. This is to boost economic activity. Also that this would attract private investment required for meeting the GDP growth forecast of 7.2%.

The policy would help cut EMIs on the retail and consumer loans.

This was the second back-to-back rate cut by the six-member MPC ever since Das was appointed the RBI Governor. It is very important to note that the decision made India the only country in Asia to have cut interest rates twice in three months.

MPC voted 4:2 in favour of the rate cut. Pami Dua, Ravindra Dholakia, Michael Debabrata Patra and Shaktikanta Das voted in favour of the decision to reduce the policy repo rate. Chetan Ghate and Viral Acharya voted to keep the policy rate unchanged.

“GDP in the first half of FY20 may stay in 6.8-7.1 per cent range while the same may jump to 7.3-7.4 per cent in the second half,” the RBI said in a press release.

HIGHLIGHTS

• GDP growth for FY20 cut to 7.2 per cent from 7.4%
• CPI inflation target revised downward to 2.4% from 3%
• RBI took note of headwinds to Indian economy
• MPC votes 4-2 in favour of 25 bps rate cut
• To come out with norms for rate cut transmission
• MPC votes 5-1 to keep stance unchanged at ‘neutral’
• MPC’s Ghate, Viral Acharya voted for status quo
• Low Jan-Feb food inflation to have bearing on near term CPI

Consumer price inflation was seen at 2.9-3 per cent in the first six months of FY20, below the RBI’s comfort zone of 4 per cent. The central bank sees inflation rising to 3.5-3.8 per cent in the second half, with risks evenly balanced.

Overall, the decision shows that the Indian economy is in good shape and ready to take challenges head on.