Published: Пт, Апреля 05, 2019
Business | By Eloise Houston

RBI reduces key lending rate by 25 bps

RBI reduces key lending rate by 25 bps

In line with the analysts expectations, the Reserve Bank of India on Thursday reduced the key policy rates by 25 basis points.

The RBI MPC's three-day meeting started on Tuesday with the Investors hoping that the central bank will go for a 25 bps rate cut in its monetary policy announcement.

RBI has also cut India's GDP growth projection for 2019-20 to 7.2%, from 7.4% forecasted in February policy meet and lowered retail inflation to 2.4 % for the fourth quarter of 2018-19, which was pegged at 2.8% in February.

Manish Lunia - Co-Founder at FlexiLoans said, "The rate cuts by the Central bank will act as a balm to the subdued economic activity components that have a lot of political and macroeconomic uncertainties to handle in the near to medium term". The global outlook is also worsening, and with the U.S. Federal Reserve halting its rate tightening cycle, emerging-market central banks are getting some breathing space. The bank rate was fixed at 6.25%. The second consecutive cut has come in view of tight liquidity, muted domestic growth, trade imbalances and sanctions in foreign markets. "Banks have cut their MCLR (Marginal Cost of Funds-based Lending Rate) marginally by 10 basis points, but more needs to be done".

With that in mind, more than 85 percent of the almost 70 economists polled by Reuters expected the RBI to cut its benchmark lending rate, the repo rate, by 25 basis points to 6.00 percent on 4 April.

"Now GDP growth for 2019-20 is projected at 7.2% in the range of 6.8-7.1 per cent in the first quarter of 2019-20 and 7.3-7.4 the second half", the RBI said.

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Since then, there are some signs of domestic investment activity weakening as reflected in a slowdown in production and imports of capital goods.

It said consumer inflation was 2.57 per cent in February. "The moderation of growth in the global economy might impact India's exports", the resolution of the MPC said.

The inflation path during 2019-20 is likely to be shaped by several factors.

The central bank is monitoring the government's fiscal situation, but it won't be right to assume there would be a slippage, Das said. But with demand in the economy cooling, the core measure is expected to ease in coming months.

"The MPC notes that the output gap remains negative and the domestic economy is facing headwinds, especially on the global front", the RBI said in a statement. The need is to strengthen domestic growth impulses by spurring private investment which has remained sluggish.

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