Reserve Bank of India (RBI) in its third bi-monthly Monetary Policy Statement for 2019-20 cut the repo rate by 0.35 per cent on Wednesday. This is the fourth rate cut announced in 2019 after which the repo rate now stands at 5.40 per cent. The RBI had already cut the rate by 75 basis points in the calendar year 2019 and hence taking today’s rate cut into account, the repo rate is down by 1.10 per cent since January 2019.
A fall in the repo rate, if passed on by banks to consumers, would mean cheaper home and auto loan rates, as well as lower interest rates on fixed deposits. For NRIs who like to park their funds in FDs, this means bad news.The six-member monetary policy committee (MPC) also maintained the accommodative stance on the monetary policy.
Noting that inflation is currently projected to remain within the target over a 12-month ahead horizon, the MPC said since the last (June) policy, domestic economic activity continues to be weak, with the global slowdown and escalating trade tensions posing downside risks.
It said that even as the past rate cuts are being gradually transmitted to the real economy, the benign inflation outlook provides headroom for policy action to close the negative output gap.The RBI also revised real GDP growth for 2019-20 downwards to 6.9 per cent from 7 per cent in the June policy.
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