RBI cuts lending rate by 0.25%, projects GDP growth at 7.4%

RBI Policy MPC Cuts Benchmark Rate RBI Governor Emphasises Growth

Four of six members of the MPC voted to cut the rates, while all six voted for a change in the stance.

India's rate cut continues a trend in which some major central banks, anxious about slowing global growth and helped by low inflation, have moved firmly away from the tightening moves made past year.

The last Indian repo rate cut, to 6%, was in August 2017.

When asked about transmission and banks' reluctance to pass on the rate decreases to borrowers, Das said it is up to the individual banks to take a call on their lending, underlining that the RBI only gives a directional move.

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This is Das' first monetary policy review after taking charge as the RBI Governor, replacing Urjit Patel.

Addressing the media on MPC's decision, Das said that GDP projection for 2019-20 is 7.4%.

RBI has decided enhancement of collateral free agriculture loan from Rs 1 lakh to Rs 1.6 lakhs. The repo rate cut will lead to a decrease in EMIs on Home Loans, Car Loans and Personal Loans as the banks would likely decrease the interest rates.

These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of 2 per cent up or down, while supporting growth, the MPC said in a statement. Das also reaffirmed the RBI's commitment to ensure there is adequate liquidity available in the market saying no sector in the economy will be starved of growth funds. "The need is to strengthen private investment activity and buttress private consumption", the MPC statement said.

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The committee though flagged external headwinds including trade tensions, and crude oil prices, which though appear well-behaved now.

"Looking beyond the current year, the growth outlook is likely to be influenced by. aggregate bank credit; and overall financial flows to the commercial sector continue to be strong, but are yet to be broad-based", the MPC said.

The inflation rate is estimated at 3.2-3.4% in the first half of the year 2019-20 and 3.9% in the third quarter of 2019-20, he said. The RBI has also changed its stance to "neutral" from existing "calibrated tightening". He said the central bank will be meeting the heads of banks in the next two to three weeks and assured to take up the matter with the bankers.

Among the factors it listed were: vegetable prices could rise that could cause food inflation to spike, the outlook on oil price continuing to remain hazy, the impact of global trade tensions, the "unusual spike in the prices of health and education", the volatility of financial markets and any change in the monsoon outcome.

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