RBI Slashes Repo Rate by 25 Basis Points, Changes Stance to 'Neutral'

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The six-member MPC, headed by Reserve Bank of India Governor Shaktikanta Das, began its meeting on Tuesday and announced its decision on Thursday. Consequently, the reverse repo rate has also come down by a similar percentage point to 6 percent.

Monetary policies have never been about Reserve Bank of India (RBI) governors (the individual) alone ever since the formulation of Monetary Policy Committee (MPC).

It also changed the policy stance to "neutral" from the earlier "calibrated tightening", signalling further softening on its approach to rates.

The central bank's surprise cut in interest rate could work well with the Narendra Modi government at the Centre which wants to boost growth in an election year.

RBI Governor Shaktikanta Das cut the interest rate by 0.25 percent to 6.25 percent, a move that will lead to reduction of lending rate by banks leading to lower EMI for housing, auto loan and corporate borrowers. The next meeting of the MPC is scheduled from April 2 to 4.

It has revised downwards the path of retail inflation to 2.8 per cent in the fourth quarter of the fiscal, 3.2-3.4 per cent in the first half of 2019-20 and 3.9 per cent in the third quarter of 2019-20, with risks broadly balanced around the central trajectory.

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The short-term outlook for food inflation appears particularly benign, despite adverse base effects.

The RBI governor said that they expect GDP growth rate to be at 7.4 per cent in fiscal 2019-20 which is up from 7.2 per cent estimated for financial year 2018-19 by central statistical organization.

Capital Economics' Williams said that the budget proposals combined with looser monetary policy is likely to fuel inflation, raising concerns over how committed the RBI is to keeping it in check.

"Investment activity is recovering but supported mainly by public spending on infrastructure", the MPC said in a statement.

The RBI has raised the limit of collateral-free agriculture loans to Rs 1.6 lakh from the current Rs 1 lakh.

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