Economists call for at least 25 bps rate cut by RBI

RBI lowers repo rate by 25 basis points to 6% – the second cut in two months

Along predicted lines, the Reserve Bank of India cut repo rate by 25 basis points to 6% - the second consecutive rate cut under new RBI governor Shaktikanta Das.

The six-member Monetary Policy Committee (MPC) voted 4-2 to reduce the policy repo rate by 25 basis points while 5-1 voted in favour of the decision to maintain the neutral stance of monetary policy.

A panel of economists, including former Chief Economic Adviser Arvind Virmani, Tuesday called for at least 0.25 percentage point rate cut in the RBI's first monetary policy of the current fiscal to be unveiled later this week.

In 2018, the central bank had raised rates by 50 bps to 6.5% which in 2019 has been cut and repo rate is back at 6%.

Das' predecessor Urjit Patel, along with his five-member Monetary Policy Committee, had once declined to meet the finance minister earlier.

"These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of + or - 2 per cent, while supporting growth".

Das remained committed to easing liquidity conditions and said the liquidity release through SLR adjustments, past bond purchases, and dollar swaps should encourage banks to lower rates. The next meeting of the MPC is scheduled for June 3-6. This is the second time in two months that the central bank has cut the rate.

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This is a significant revision down from the February policy, which had expected inflation to be at 2.8 per cent in the fourth quarter and 3.2-3.4 per cent in the first half.

GDP (gross domestic product) growth for 2019-20 is projected at 7.2 per cent - in the range of 6.8-7.1 per cent in H1:2019-20 and 7.3-7.4 per cent in H2 - with risks evenly balanced.

RBI governor Shaktikanta Das says that the Reserve Bank will watch the evolving macroeconomic situation and act when required.

Since then, there are some signs of domestic investment activity weakening as reflected in a slowdown in production and imports of capital goods. The country saw the lowest number of new investment proposals since 2004-05 during the last fiscal ended March, according to Centre for Monitoring Indian Economy (CMIE) report.

The inflation path during 2019-20 is likely to be shaped by several factors.

"The need is to strengthen domestic growth impulses by spurring private investment which has remained sluggish", the RBI said in a statement.

RBI revises downward retail inflation estimate to 2.4 per cent in Q4 FY19.

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