The Reserve Bank of India on Friday lowered the Gross Domestic Product growth rate forecast to 6.1% from 6.9%. For 2020-’21, the GDP outlook has been revised to 7.2%.
The bank attributed the slump in growth to weak domestic demand and poor export prospects due to ongoing trade tensions. The bank’s Monetary Policy Committee, however, retained its consumer price inflation forecast for the second half of the 2019-’20 financial year at 3.5%-3.7%.
The RBI also lowered the repo rate, or the interest rate at which it lends to commercial banks, by 25 basis points to 5.15%. This is the fifth time this year that the central bank has cut the rate. The revision is likely to lower interest rates on new bank loans.
The reverse repo rate, too, was lowered to 4.90%. The reverse repo rate is the rate at which the central bank borrows money from commercial banks.
All six members of the Monetary Policy Committee voted unanimously for a rate cut. While five members – Chetan Ghate, Pami Dua, Michael Debabrata Patra, Bibhu Prasad Kanungo and Shaktikanta Das – voted to reduce the repo rate by 25 basis points, only Ravindra H Dholakia voted to slash it by 40 basis points, according to Mint.
“[The] accommodative stance will be maintained as long as it is necessary to revive growth while ensuring that inflation remains within the target,” the Monetary Policy Committee said.
This came at a time when India’s economy is faltering. Economic growth rate slipped to 5% in the April-June quarter, the lowest in over six years. In the last few months, core sectors such as automobiles and manufacturing have witnessed a progressive slowdown because of weakened consumer demand and dearth of investments.
On September 20, Union Finance Minister Nirmala Sitharaman had announced reductions in corporate tax rates for domestic companies and new manufacturing firms in a fresh attempt to promote growth. The move will cost the government an estimated Rs 1.45 lakh crore annually. These measures were part of a series of announcements by Sitharaman to revive the economy.
The previous mega announcements were designed to encourage private sector investment and bring further stability into the banking system through several public sector bank mergers. Another announcement, on September 14, included a Rs 50,000-crore export incentive scheme and a Rs 10,000-crore special window to provide last mile funding for unfinished housing projects.
“While the recent measures announced by the government are likely to help strengthen private consumption and spur private investment activity, the continuing slowdown warrants intensified efforts to restore the growth momentum,” the RBI said in a statement.
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