The Reserve Bank of India has reduced its policy rate by 35 basis point to 5.4% in its third bimonthly monetary policy statement. This is the fourth time in six months that the orthodox thinking RBI reduces the repo rate.
After the latest policy, the repo rate has been reduced from 5.75 per cent to 5.40 per cent. The policy rate was 6.5% beginning this year.
RBI’s intervention is necessary in a phase where the economy has started to show the symptoms of slow growth.
The latest quarterly GDP growth rate of 5.8% was the lowest recorded since 2014 first quarter. Similarly, the annual GDP growth rate of 2018-19 recorded the 5-year low of 6.8%. Index of industrial production registered a dismal growth rare of 0.2% in June this year.
A positive factor that encourages the RBI to go for the repo rate cut is the prevailing low level of inflation. The inflation rate is well below the targeted rate of 4% and for the latest reported month of June, the CPI inflation rate registered 3.18%.
In its statement, the Monetary Policy Committee (MPC), which is the governing body for monetary policy implementation, indicated that it is going ahead with the accommodative monetary policy.
All the six members of the MPC voted for a policy rate cut though with different levels. Next meeting of the MPC is scheduled in early October and by that time, more symptoms about the economy’s performance is expected to come out for the central bank action.
