RBI cuts repo rate to 6.25 percent, changes policy stance to 'neutral' in monetary policy review

The RBI governor Shaktikanta Das heading the monetary policy committee announced that there was downward revision in the retail inflation forecast to 2.8% for March quarter 2019. Headline inflation is expected to remain contained below or at its target of 4%.

Reserve Bank of India

New Delhi: The Reserve Bank of India (RBI) in its monetary policy review announcement on Thursday lowered the repo rate by 25 basis points to 6.25 from 6.5 per cent, while the reverse repo rate was also slashed by 25 basis points to 6.00 per cent. The GDP growth projection for FY 2019-20 was placed at 7.4 per cent by the central bank. The apex bank also changed the policy stance from calibrated tightening to 'neutral'. The implication of the RBI reducing the repo rate is that the equal monthly installments for housing loans are likely to become cheaper (only if you got your loan on a floating interest rate). In a statement, the Reserve Bank of India's Monetary Policy Committee said that its decisions today were taken with the objective of achieving a consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent. The six-member monetary policy committee voted 4:2 in favour of the rate cut, while the decision to change policy stance was unanimous. Deputy Governor Viral Acharya and another MPC member, Chetan Ghate, voted for status quo in interest rates, while Shaktikanta Das and three others voted for a cut in interest rates. The RBI governor Shaktikanta Das heading the monetary policy committee announced that there was downward revision in the retail inflation forecast to 2.8% for March quarter 2019. Headline inflation is expected to remain contained below or at its target of 4%. This has opened space for policy action. Investment activity is recovering supported mainly by public spending on infrastructure, Das said. The RBI's Monetary Policy Committee (MPC) began a 3-day meet on February 5 to decide on key rates amid expectations it would change its policy stance to neutral on low inflation but may not cut rates due to fiscal challenges and rising oil prices. The six-member MPC, headed by RBI Governor Shaktikanta Das, will meet between Tuesday and Thursday for the sixth bi-monthly monetary policy statement for 2018-19. In view to boost digital transactions, the Monetary Policy Committee of the Reserve Bank had decided to implement ombudsman for digital transactions. According to news agency ANI, the RBI taken a positive view of a proposal for an umbrella organisation for urban cooperative banks. A decision on the specifics of the umbrella organisation will be taken in a short while. India's economic growth slowed to 7.1 per cent in the September quarter after peaking to an over two-year high in the first three months of this fiscal, as consumption demand moderated and farm sector displayed signs of weakness. The growth in Gross Domestic Product (GDP) in July-September was the lowest in three quarters, but better than 6.3 per cent in the same period of the previous year. The Indian economy had grown by 8.2 per cent in the first quarter of the current fiscal year that began in April last year, according to data released by the Central Statistics Office (CSO). Deviating from the practice of releasing the resolution of MPC in the afternoon, the Reserve Bank of India (RBI) will place it on its website at 11.45 am on February 7. The RBI maintained status quo on the key lending rate (repo) in its last three bi-monthly policy reviews after raising the rate twice by 25 basis points each in the fiscal. In its previous monetary policy review in December 2018, the RBI had kept interest rates unchanged but held out a promise to cut them if the upside risks to the inflation do not materialise. Having raised rates twice this fiscal, the central bank retained its 'calibrated tightening' policy stance.