The Reserve Bank of Indian (RBI) cuts down the benchmark interest rate by 25 basis points (bps) to 6% on Thursday. In an attempt to push the Indian economy before the commencement of Lok Sabha Election 2019. This was the second time in a row that the RBI has brought the key lending rate to the lowest on softening inflation.
It was in the month of April 2018 when the repo rate was just 6%.
As there is still some uncertainty about the monsoon, hence, the central bank kept the monetary policy stance ‘Neutral’.
The decision was taken in the second policy review meeting headed under Governor Shaktikanta Das where out of the six members of Monetary Policy Committee four voted in the favour of the rate cut.
The cut in the benchmark rate will result in lowering the cost of borrowing for the banks from RBI who will further relay the same to corporates as well as individuals.
Last time, the RBI cut the interest rate to 6.25% from 6.5% on 7th February 2019.
The RBI said, “The Monetary Policy Committee (MPC) notes that the output gap remains negative and the domestic economy is facing headwinds, especially on the global front. The need is to strengthen domestic growth impulses by spurring private investment which has remained sluggish.”
In the monetary policy report, which is published by RBI it said that going forward, farm loan waivers schemes announced by the government of some states, alternative farm support schemes, lower direct tax collections, and food procurement and higher minimum support prices could put pressure on the combined fiscal deficit.
While talking about the risk to the upward inflation trajectory, RBI said that volatility in international financial markets, higher crude oil prices, fiscal slippages and the risk of a sudden reversal in the prices of perishable food items, are some of the challenges.