RBI cuts repo rate by 25bps

The RBI in its fourth bi-monthly monetary policy statement for 2019-20 has cut repo rate by 25 basis points. This is the fifth consecutive time that the RBI has reduced the repo rate in 2019. The RBI has also reduced the GDP growth forecast from 6.9 percent to 6.1 percent for the current fiscal year 2019-20.

RBI’s six-member Monetary Policy Committee (MPC), headed by RBI Governor Shaktikanta Das, announced RBi’s fourth bi-monthly monetary policy for 2019-20 on October 4, 2019 after a three-day-long meeting. All the six members of the MPC voted unanimously to change the policy rates and MPC stance.

Following are the 10 key highlights of RBI’s fourth bi-monthly monetary policy statement for 2019-20:

1. Repo rate and reverse repo rate: The repo rate has been cut by 25 bps to 5.15 percent. The reverse repo rate has been cut by 4.9 percent. The bank rate continues to stand at 5.4 percent.

2. The MPC will continue with its accommodative stance, which it had adopted during the second bi-monthly policy 2019-20, departing from its earlier neutral stance. The accommodative stance will remain as long as necessary to revive growth while ensuring inflation remains within target.

3. GDP growth forecast: The GDP growth forecast has been cut from 6.9 percent to 6.1 percent for the ongoing fiscal year 2019-20.

4. CPI: The Consumer price inflation (CPI) forecast has been retained for the second half of the fiscal year 2019-20 at 3.5-4 percent.

5. Weak rural and urban demand: The MPC noted that the slump in real GDP growth in Q2 was followed by weaker demand. The committee highlighted that the government has announced several measures in the last two months to revive demand. Overall, the RBI Governor Shaktikanta Das stated that the global economy has lost momentum.

6. Inflation: Households expect inflation to rise by 40 basis points over a 3-month ahead horizon and 20 basis points over a one-year ahead horizon.

7. Global economy loses momentum: The RBI said that the September 2019 inflation expectations survey indicates that households expect inflation to rise by 40bps over a 3-month ahead horizon and 20bps over a one-year ahead horizon.

8. Agriculture: The RBI said that agriculture in India is well-positioned to lead the recovery in domestic demand. Vegetable prices, however, may continue to remain elevated in the coming months but are likely to moderate as winter supplies enter the market.

9. Manufacturing and construction sector activities looked up in August.

10. Surplus Liquidity: The RBI noted that the liquidity remained in surplus during August and September despite the expansion in the currency in circulation.

In conclusion, RBI Governor Shaktikanta Das assured that the Indian banking sector remains sound and stable and that there is no reason for unnecessary panic. On the PMC Bank issue, the RBI governor stated that as soon as the issue was brought into the notice of RBI, the apex court took immediate corrective action. He further added that one such incident cannot be used to generalize the whole cooperative banking sector.

The RBI also announced that it will allow all domestic banks to offer foreign exchange prices to NRIs for free at all times, either by a domestic sales team or through their overseas branches.

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