The monetary policy committee (MPC) of the Reserve Bank of India (RBI), which met for the first time in the current financial year under the new central bank governor Sanjay Malhotra, on April 9 cut the repo rate by 25 basis point (Bps) to 6%. The MPC also decided to change the stance to accommodative from neutral.
This is the second time in a row that the central bank has cut repo rate to aid growth amid global uncertainties. Last time in February policy, the RBI had cut repo rate for the first time in five years. The repo rate is the interest rate at which the central bank lends to other banks in the country.
"Accordingly, with respect to the policy rate, which is the mandate of the MPC, today’s change in stance from ‘neutral’ to ‘accommodative’ means that going forward, absent any shocks, the MPC is considering only two options – status quo or a rate cut," the governor said in his statement.
The move is in line with a Moneycontrol poll of economists, treasury heads, and fund managers, which had predicted a 25 bps rate cut.
As a result, the standing deposit facility (SDF) rate remains changed to 5.75 % and the marginal standing facility (MSF) rate and the Bank Rate at 6.25%.
| Repo Rate | 6% |
| SDF | 5.75% |
| MSF and Bank Rate | 6.25% |
Experts had said that lower Consumer Price Index (CPI) inflation allows the MPC to focus more on growth amid global uncertainties and paves way for another rate cut, which will further boost demand in the current scenario.
“We expect the MPC's focus to shift from concerns about inflation to supporting growth. As a result, the MPC is likely to continue the rate-cutting cycle that began in February, with another 25 bps reduction in the repo rate during the April MPC meeting, while maintaining a neutral stance amid global headwinds,” CareEdge had said in a report.
The RBI Governor Sanjay Malhotra announced that the GDP growth for current fiscal is projected at 6.5% from an earlier forecast of 6.7% taking into account headwinds from external sector. The governor acknowledged the challenges because of tariffs imposed by Trump.
"Higher tariffs shall have a negative impact on net exports," the governor noted.
The retail inflation forecast has been brought down to 4% from 4.2% earlier as the prospects for agriculture remain bright due to healthy reservoir levels and crop production.
The governor said that the growth-inflation trajectory should remain growth supportive while being watchful of inflation at a time when global challenges have mounted.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
