The Reserve Bank of India on Thursday lowered the repo rate, or the interest rate at which it lends to commercial banks, by 25 basis points to 6.25%. This is the first time in 17 months that the central bank has cut the rate.
The reverse repo rate, too, was lowered to 6%, and the bank rate to 6.25%. The reverse repo rate is the rate at which the central bank borrows money from commercial banks. The bank rate is rate of interest the RBI charges on its loans and advances to commercial banks.
The six-member monetary policy committee, headed by RBI Governor Shaktikanta Das, changed the policy stance to “neutral” from “calibrated tightening”.
This was the first RBI policy meeting since Das took over as the RBI governor in December. The next meeting of the committee is scheduled from April 2 to April 4.
The central bank pegged the growth in Gross Domestic Product at 7.4% in 2019-’20.
The RBI revised the projection for Consumer Price Index inflation downward to 2.8% in the fourth quarter of 2018-’19 financial year. Retail inflation declined from 3.4% in October 2019 to 2.2% in December, which the RBI said was the lowest in the last 18 months.
“Headline inflation is projected to remain soft in the near term reflecting the current low level of inflation and the benign food inflation outlook,” the central bank said. “Beyond the near term, some uncertainties warrant careful monitoring.”
Addressing a press conference after the policy meeting, Das said inflation rate for the first half of the next financial year is estimated at 3.2%-3.4%. In the third quarter of 2019-’20, the rate is estimated at 3.9%, Das said.
The RBI governor added that the central bank was constantly and continuously monitoring the liquidity situation and ensure that there is no scarcity.