RBI cuts key rate by 35 bps to boost economic activitiy

RBI cuts key rate by 35 bps to boost economic activitiy

Mumbai: Reserve Bank governor Shaktikanta Das Wednesday said the economy is in the midst of a cyclical slowdown and not a structural one, and exuded confidence of growth reviving soon on the back of cheaper money and likely more government measures. To a question on real interest rates and the level which the central bank is targeting, he said this is not the right time to look at that aspect as the RBI's main focus is to meet the output gap. When the cost of borrowing goes down for banks, they are able to lower their respective marginal cost of funds based lending rate (MCLR), which directly impacts your loans.

All members unanimously voted to reduce policy rates, keep stance unchanged.

The repo rate is lowest since April 2010.

Four MPC members voted for the 35 basis points cut, while two voted for a 25 basis point cut, the RBI said.

RBI Governor Shaktikanta Das said the financial markets have fully absorbed the past three rate cuts.

"Addressing growth concerns by boosting aggregate demand, especially private investment, assumes the highest priority at this juncture while remaining consistent with the inflation mandate", the MPC said in a statement on Wednesday afternoon.

Das said the recent rate cuts in tandem with anticipated government moves should lift sluggish economic growth.

The admission of the rising headwinds to growth led the monetary authority to slash the lending rates by an unprecedented 35 bps to 5.40 percent in the fourth successive rate reductions since he assumed power in December.

RBI maintains accommodative stance for monetary policy; says inflation to remain within targeted band.

The RBI noted that global economic activity has slowed down since the previous monetary policy meeting in June owing to trade tensions among leading economies.

It further mentioned that import of capital goods - a key indicator of investment activity - contracted in June. The CPI retail inflation is projected at 3.1 per cent for Q2 FY20 and 3.5-3.7 per cent for Q2 FY20.

"Today's steps are marginally better from the ones taken earlier, but even these seem to be merely incremental in nature considering the current market", said the head of another small NBFC, who also asked not to be named.

'RBI has done its part' Making sure banks are actively working towards growth like RBI is, is much more necessary in the current situation. "Even as past rate cuts are being gradually transmitted to the real economy, the benign inflation outlook provides headroom for policy action to close the negative output gap".

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