Mumbai: Delivering second straight cut in key interest rate in the wake of softening retail inflation, the Reserve Bank of India (RBI)'s Monetary Policy Committee (MPC) on Wednesday decided to cut policy repo rate by 25 basis points to 6 per cent with immediate effect.
"After a detailed assessment of the evolving macroeconomic and financial conditions and outlook, the Monetary Policy Committee (MPC) voted unanimously to reduce the policy repo rate by 25 basis points to 6 per cent with immediate effect,” RBI Governor Sanjay Malhotra said while announcing the first bi-monthly monetary policy of the current fiscal.
Consequently, the standing deposit facility (SDF) rate under the liquidity adjustment facility shall stand adjusted to 5.75 per cent and the marginal standing facility (MSF) rate and the Bank Rate shall stand adjusted to 6.25 per cent.
Besides relief for homebuyers and other borrowers, the repo rate cut is expected to boost economic growth which faces multiple headwinds especially trade disruptions and sluggish private investment.
On rationale of the monetary policy decision, Malhotra said that the MPC noted that the inflation is currently below the target.
"It is supported by a sharp fall in food inflation. Moreover, there is a decisive improvement in the inflation outlook. As per projections, there is now a greater confidence of a durable alignment of headline inflation with the target of 4 per cent over a 12-month horizon," he said.
Marking the first rate cut in nearly five years, the central bank had in February this year reduced the repo rate by 25 basis points to 6.25 per cent.
One basis point is equivalent to 0.01 per cent.
While announcing the monetary policy, the RBI Governor said that the current financial year has begun on an anxious note for the global economy.
"The global economic outlook is fast changing. The recent trade tariff related measures have exacerbated uncertainties clouding the economic outlook across regions, posing new headwinds for global growth and inflation," Governor Malhotra said.
He, however, noted that the Indian economy has made steady progress towards the goals of price stability and sustained growth.
