RBI cuts key interest rate by 0.25 pc week before elections; lowers inflation forecast to 2.9-3 pc

The benchmark interest rate was cut by 0.25 per cent to 6 per cent, a move that will result in lower cost of borrowing for the banks that are expected to transmit the same to individuals and corporates.

Reserbe Bank Of India/ File PTI image

Mumbai: The Reserve Bank of India Thursday cut benchmark interest rate by 0.25 per cent for the second time in a row to bring interest rate to the lowest level in one year on softening inflation. The central bank, however, kept monetary policy stance at 'neutral'. In the second policy review under Governor Shaktikanta Das, the six-member Monetary Policy Committee voted 4:2 in favour of the rate cut. The benchmark interest rate was cut by 0.25 per cent to 6 per cent, a move that will result in lower cost of borrowing for the banks that are expected to transmit the same to individuals and corporates. The RBI had on February 7 had last cut interest rate to 6.25 per cent from 6.5 per cent. Last time repo rate stood at 6 per cent was in April 2018.

RBI Governor Shaktikanta Das: GDP projection for 2019-20 is kept at 7.2%, 6.8 to 7.1% for the first half of 2019-20 & 7.3 to 7.4% for the second half. pic.twitter.com/rBXeDo43rz

— ANI (@ANI) April 4, 2019

The rate cut is in consonance of achieving the medium term objective of maintaining inflation at the 4 per cent level while supporting growth, RBI said in a statement. The Apex bank also cut the retail inflation forecast to 2.9-3 per cent for the first half of current fiscal, mainly due to lower food and fuel prices as well as expectation of a normal rainy season. The RBI has reduced the key policy rate by 25 basis points to 6 per cent. The inflation path during 2019-20 is likely to be shaped by several factors. First, low food inflation during January-February will have a bearing on the near-term inflation outlook. Second, the fall in the fuel group inflation witnessed at the time of the February policy has become accentuated, RBI said in its first bi-monthly monetary policy for 2019-20. "Taking into consideration these factors and assuming a normal monsoon in 2019, the path of CPI inflation is revised downwards to 2.4 per cent in Q4:2018-19, 2.9-3.0 per cent in H1:2019-20 and 3.5-3.8 per cent in H2:2019-20, with risks broadly balanced," the RBI said.