The first rate cut of the new fiscal comes soon after data indicated that eight core industries grew only marginally in February
Image: Indranil Mukherjee/AFP/Getty Images The Reserve Bank of India (RBI) cut the repo rate by 25 basis points (0.25 percent) to 6 percent on Thursday. In its first monetary policy outing of the new financial year, the market was expecting the apex bank to announce a rate cut to infuse liquidity into the economy as growth improved only marginally and inflation remains low. Hence, the announcement is likely to have a minimal impact on the bourses. Repo rate is the rate at which the central banks lend to commercial banks. A cut in the repo rate may lead to a reduction of interest rates of new and existing loans.
In a statement, the RBI said, “On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) at its meeting today decided to reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 6.0 percent from 6.25 percent with immediate effect.”
The core sector includes coal, crude oil, natural gas, refinery products, fertilizers, steel, cement, and electricity.
Explaining its policy decision, the RBI statement further adds: The second advance estimates for 2018-19 released by the Central Statistics Office (CSO) in February 2019 revised India’s real gross domestic product (GDP) growth downwards to 7.0 per cent from 7.2 per cent in the first advance estimates. Domestic economic activity decelerated for the third consecutive quarter in Q3:2018-19 due to a slowdown in consumption, both public and private.”