RBI lowers growth forecast to 5 per cent; keeps repo rate unchanged

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Springing a surprise, the monetary policy committee of the Reserve Bank of India (RBI) maintained the repo rate at 5.15 per cent points (bps) in its fifth bi-monthly monetary policy meeting of the financial year 2019-20 (FY20) on Thursday.

The MPC recognises that there is monetary policy space for future action.

Even though governor Shaktikanta Das asserted that a rate cut is not off his table and reiterated the accommodative stance, many analysts are of the view that rising headline inflation numbers may result in a longer pause by the monetary authority.

The RBI's lending rates are seen to be directly linked to the interest rates on deposits and loans charged by banks, and hence each time the central bank cuts its repo rate (key lending rate), it is said that popular loan schemes such as home loans and auto loans get cheaper.

The committee said growth had slowed down and inflation was expected to rise in the near term and moderate below the target only by July-September 2020. The central bank raised its inflation forecast for the second-half of the fiscal year to 4.7%-5.1% from 3.5%-3.7% seen previously.

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The Reserve Bank of India (RBI) said the benchmark repo rate - the level at which it lends to commercial banks - would remain unchanged at 5.15 percent, a nine-year low.

All members of the MPC voted in favour of the decision.

The RBI cut its full-year growth forecast for the fiscal year through March to 5% from 6.1%, while adding the inflation print in October was "much higher than expected". But it kept lending rates unchanged.

While improved monetary transmission and a quick resolution of global trade tensions are possible upsides to growth projections, a delay in revival of domestic demand, a further slowdown in global economic activity and geo-political tensions are downside risks, it said.

"The need at this juncture is to address impediments, which are holding back investments", the RBI said.