On Wednesday, the Reserve Bank of India cut the repo rate by 35 basis points to bring it down to 5.4%, making it the fourth reduction in a row since Shaktikanta Das took over as the RBI Governor last December.
The bank’s monetary policy committee unanimously voted for a rate cut and to maintain the accommodative stance of the banking regulator. Four members — Ravindra H. Dholakia, Michael Debabrata Patra, Bibhu Prasad Kanungo and Shaktikanta Das — voted to reduce the policy repo rate by 35 basis points, while two members — Chetan Ghate and Pami Dua — voted to reduce the policy repo rate by 25 basis points.
At the same time, the RBI projected the consumer price index inflation to be around 3.1% for the second quarter of FY20 and 3.5-3.7% for the second half of FY20. CPI inflation for the first quarter of FY21 is now projected to be 3.6%. The MPC also revised the GDP growth estimates downward for this year from 7% projected in the June policy to 6.9% in August. The MPC expects the economy to grow between 5.8%-6.6% in the first half of FY20 and 7.3%-7.5% in the second half with risks somewhat tilted to the downside. GDP growth for the first quarter of FY21 is expected to be 7.4%.
The MPC said that inflation is currently projected to remain within the target over a 12-month ahead horizon.
“Since the last policy, domestic economic activity continues to be weak, with the global slowdown and escalating trade tensions posing downside risks. Private consumption, the mainstay of aggregate demand, and investment activity remains sluggish," it said.
MPC said that even as transmission remains a problem and the rate cuts will flow towards the economy in its due time, the concern for growth remains a top priority and that steps must be taken to boost aggregate demand, especially private investment.
“The downward adjustment in the GDP growth projection was warranted by various high frequency indicators pointing to weakening of both domestic and external demand conditions. On the other hand, the MPC was of the view that the impact of monetary policy easing since February 2019 is expected to support economic activity, going forward,” said RBI Governor Shaktikanta Das.