GoldSilverReports.com — RBI Repo Rate Cut – The Reserve Bank of India (RBI) today cut its repo rate, or the rate at which it lends to banks, by 25 basis points to 6%.
This is the second consecutive rate cut from RBI under new chief Shaktikanta Das, after a surprise rate cut in February. 41 of 43 economists surveyed by Bloomberg had expected the RBI to cut repo rate by 25 bps, amid weakening economic growth and subdued inflation outlook. Two expected no change.
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However, banks may be able to pass on the RBI’s rate cut to borrowers only to a limited extent, say analysts. Earlier, banks had only reduced their lending rates by a token 5-10 basis points after the RBI’s last 25 bps cut in February.
Deposit growth has come down sharply and every bank is competing with another to attract depositors, a top banker told Reuters.
The monetary policy committee of the RBI also decided to maintain the neutral monetary policy stance. The monetary policy committee voted 4-2 in favour of the rate cut.
The RBI noted several uncertainties clouding its inflation outlook. “First, with the domestic and global demand-supply balance of key food items expected to remain favourable, the short-term outlook for food inflation remains benign.
However, early reports suggest some probability of El Niño effects in 2019. There is also the risk of an abrupt reversal in vegetable prices, especially during the summer months,” the RBI said.
The central bank also noted that crude oil prices have risen around 10% since the last policy.
The economic growth weakened to 6.6% in December quarter, its slowest in five quarters. Annual retail inflation was just 2.57% in February following five months of deflation in food prices, and the RBI had earlier projected a rise to 3.9% by the end of December. But that could change quickly if the monsoon fails or global oil prices surge.
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