Monetary Policy Meet: The six member monetary police committee (MPC), headed by Reserve Bank of India (RBI) governor Shaktikanta Das, has decided to reduce the key repo rate by 35 basis points to 5.40 per cent from 5.75 per cent with immediate effect. This is for the fourth consecutive time that the RBI has cut the repo rate this year as a cordial inflation provides the central bank room to help an economy that is growing at its slowest in nearly five years.

As per reports, the central bank has also trimmed gross domestic product (GDP) growth forecast for current fiscal to 6.9 per cent from 7 per cent previously predicted. Almost 80 per cent of 66 economists surveyed conducted by news agency Reuters expected that the RBI will cut its benchmark repo rate by 25 bps while three predicted a 50 bps cut.

The RBI also lowered the GDP growth rate for 2019-20 lower to 6.9 per cent, as compared to earlier estimate of 7 per cent. The MPC meeting witnessed a unanimous voting to reduce the repo rate and also to maintain an accommodative stance on the monetary policy of the country.

Noting that inflation is currently projected to remain within the target over a 12-month ahead horizon, the MPC said since the last (June) policy, domestic economic activity continues to be weak, with the global slowdown and escalating trade tensions posing downside risks.

It said that even as the past rate cuts are being gradually transmitted to the real economy, the benign inflation outlook provides headroom for policy action to close the negative output gap. This is the fourth consecutive time that the RBI has reduced repo rate. In the earlier three policies, it has reduced repo rate by 25 basis points each.

CPI inflation is projected at 3.1 per cent for the second quarter of FY20 and 3.5-3.7 per cent for second half of FY20, with risks evenly balanced.

During its last MPC meeting held in June, RBI had reduce key repo rate by 25 basis points to 5.75 per cent from 6.0 per cent. The reverse repo rate under the LAF (liquidity adjustment facility) was also adjusted to 5.50 per cent and the marginal standing facility (MSF) rate and the bank rate to 6.0 per cent.