Admitting slowdown, RBI lowers growth forecast to 6.9 percent

RBI Cuts Repo Rate by 35 bps To Help Boost Economic Growth

SBI cut its marginal cost-based lending rates by 15 basis points within hours of a steeper 35 basis points reduction in the repo rates by the Reserve Bank to 5.4 percent in its fourth consecutive MPC policy. It can be noted that the March quarter GDP printed at a five-year low of 5.8 percent while the FY19 GDP printed in at a four-year low of 6.8 percent and everyone is the same page that June quarter would be even lower than the preceding three months to March. It also trimmed the GDP growth forecast for the current fiscal to 6.9 from 7 per cent.

Historically, the central bank has been either reducing or increasing rates in the multiples of 25 basis points.

Mumbai: The Reserve Bank of India (RBI) cut key lending rates by another 35 basis points to 5.40 per cent on Wednesday.

With a 35 basis points cut in interest rates, it is highly likely that banks would reduce interest rates on home loans, vehicle loans, auto loans etc.

Das added that that MPC found 35 basis points as sufficient for the time period.

The repo rate was cut to 5.40%. The CPI retail inflation is projected at 3.1 per cent for Q2 FY20 and 3.5-3.7 per cent for Q2 FY20.

FY20 growth forecast lowered: Various high frequency indicators, the RBI said, suggested weakening of domestic and external demand conditions.

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However, MPC said that the impact of monetary policy easing since February 2019 is also expected to support economic activity, going forward.

Real Gross Domestic Product growth for 2019-'20 in the committee's June resolution was projected at 7%.

The benchmark Sensex at 12.13 p.m., was trading 28.61 points at 37,005.46, while the broader Nifty was down 4.05 points at 10,944.20.

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.

Meanwhile, the rupee slipped towards the level of 71 against the USA dollar after the central bank's decision. "While it cut 25 bp on June 6, less than our 35 bp call, the policy stance also shifted to accommodative", wrote Indranil Sen Gupta, India economist at BofAML, in a policy expectation note.

The domestic unit had settled at 70.81 against the USA dollar on Tuesday.

Emerging markets economy (EME) currencies, which traded with an appreciating bias in July, depreciated in early August on escalation of trade tensions, the RBI added.

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