Monetary Policy: MPC Cuts Rates By 25 Basis Points; Near-Term Outlook ‘Fraught With Risks’

India’s Monetary Policy Committee on Friday cut interest rates for the fifth time this year to support growth at a time the central bank believes the near-term outlook for the economy is “fraught with risks”.

The committee decided to pare the benchmark repo rate by 25 basis points to 5.15 percent. Rates have now been cut by 135 basis points since the start of the year. The MPC decided to maintain its stance at ‘accommodative’, “as long as it is necessary to revive growth, while ensuring inflation remains within the target”.

“The MPC notes that the negative output gap has widened further. While the recent measures announced by the government are likely to strengthen private consumption and spur private investment activity, the continued slowdown warrant intensified efforts to restore the growth momentum,” the committee said.

All six committee members voted for a rate cut—five of them voted for a 25-basis-point cut, while Ravindra Dholakia voted for a larger 40-basis-point cut.

All 33 economists surveyed by Bloomberg had forecast a cut in rates, though the magnitude varied from 20-40 basis points.

Key Highlights

MPC cuts repo rate by 25 basis points to 5.15 percent
MPC to maintain stance at “accommodative “as long as it is necessary to revive growth while insuring inflation remains within target
All committee members voted for a rate cut; Ravindra Dholakia voted for a 40 basis point cut
MPC cuts FY20 growth forecast to 6.1 percent from 6.9 percent
MPC raises inflation forecast marginally, sees inflation at 3.4 percent in Q2 and 3.5-3.7 percent in H2
RBI raises lending limit for micro finance institutions to Rs 1.25 lakh from Rs 1 lakh
RBI raises household income threshold for microfinance borrowers from Rs 1 lakh to Rs 1.25 lakh in rural areas; Rs 1.6 lakh to Rs 2 lakh in urban areas
RBI allows domestic banks to offer foreign exchange prices to NRIs from their Indian books
RBI allows rupee derivatives to be traded in IFSC

Monetary Policy: MPC Cuts Rates By 25 Basis Points; Near-Term Outlook ‘Fraught With Risks’ via @goldsilverrepor
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