Growth woes: RBI administers 5th rate cut; maintains accommodative stance
Mumbai: Sticking to “accommodative stance”, the Reserve Bank on Friday reduced its key lending rates to boost consumption and reverse the slowdown that has plagued India’s economic growth.
Taking the note of the continued slowdown, the apex bank, has further lowered India’s economic growth projection to 6.1 per cent from 6.9 per cent for FY20.
Accordingly, the Reserve Bank said that it will maintain the accommodative stance “as long as it is necessary to revive growth, while ensuring that inflation remains within the target”.
It was widely speculated that the RBI might change its stance to “neutral” due to the fiscal pressure expected out of the Centre’s recent growth inducing measures.
Nonetheless, the RBI’s MPC in the fourth policy review of the current fiscal reduced the repo, or short term lending rate for commercial banks, by 25 basis points to 5.15 per cent from 5.40 per cent.
Consequently, the reverse repo rate was revised to 4.90 per cent, and the marginal standing facility (MSF) rate and the bank rate to 5.40 per cent.
The move to lower repo lending rate for commercial banks, will reduce interest cost on automobile and home loans, thereby ushering in growth.
At present, high GST tax rate, along with stagnant wages, farm distress and liquidity constraints have demoralised auto, home and capital goods buyers.
Interestingly, the policy statement acknowledged that past monetary transmission has remained staggered and incomplete.
“As against the cumulative policy repo rate reduction of 110 bps during February-August 2019, the weighted average lending rate (WALR) on fresh rupee loans of commercial banks declined by 29 bps,” the statement said.
“However, the WALR on outstanding rupee loans increased by 7 bps during the same period.”
On the recent government measures to prop up growth, the RBI said, “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.”
“With inflation expected to remain below target in the remaining period of 2019-20 and Q1:2020-21, there is policy space to address these growth concerns by reinvigorating domestic demand within the flexible inflation targeting mandate.”