RBI cuts repo rate by 0.25% in bid to spur growth

RBI cuts repo rate by 0.25% in bid to spur growth: On Thursday, the Reserve Bank of India (RBI) cut repo rate for the third following time this year to 5.75 per cent from the existing 6 per cent during falling economic growth as well as indeterminate global scenario.

The six-member monetary policy committee (MPC) which was headed by Governor Shaktikanta Das settled its second meeting for the financial year 2019-20. On February 7 as well as on April 4, the central bank had reduced the key offering rate by 25 basis points in order to infuse liquidity and push development.

Those who don’t know much about Repo rate, it is the rate at which the RBI lends money to commercial banks. A repo rate cut lets banks to lessen interest rates for consumers on loans, as well as lowers equal monthly instalments on home loans, car loans and personal loans.

RBI cuts interest rate by 0.25 pc, lowers GDP forecast

India’s economy raised just 6.8 per cent in 2018-19, as per to the government data. In the fourth quarter (January to March), the progression dipped to 5.8 per cent, marking a five-year low. In the meantime, headline inflation set upright at 2.9 per cent year-on-year in the month of April, below the RBI’s target of 4 per cent.

Industry leaders say a considerable cut in the repo rate and bank lending rates are obligatory to improve and enhance the manufacturing as well as domestic demand and boost economic growth. On the other hand, there is an additional concern among government officials that commercial banks with huge bad debts as well as weak deposit growth are not automatically passing through the RBI’s repo rate cuts to borrowers.

Earlier, in the month of April, The Reserve Bank of India on April 4 cut benchmark interest rate by 0.25 per cent for the second time in a row in order to bring interest rate to the lowermost level in one year on tempering inflation. The rate cut was generally projected to boost the economy.

The central bank, on the other hand, kept monetary policy standpoint at ‘neutral’. It dropped its economic development forecast to 7.2 per cent for the 2019/20 April-March financial year, from the month of February view of 7.4 per cent.

Also, in the month of April, numerous analysts, on the other hand, believed that country’s weakening economic growth as well as restrained inflation outlook warrants a greater decline but expected the RBI in order to keep on cautious given insecurity over who is going to lead the government after the coming election and what their fiscal policy is going to be.

Campaigning for votes, political parties have been promising dole-outs comprising direct cash payments to poor people if they win power, strengthening potential price increases doubts and worries.

The RBI highlighted the need to boost domestic development due to headwinds “on the global front”.

The RBI wrote in the recent policy statement stated that “The need is to strengthen domestic growth impulses by spurring private investment which has remained sluggish.”