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RBI cuts repo rate by 35 bps to 5.40%, maintains accommodative stance.

Published: August 7, 2019

RBI had cut the policy rate by 75 basis points prior to this review.

The six-member monetary policy committee (MPC) of the Reserve Bank of India (RBI) on Wednesday cut repo rate by 35 basis points (bps) in its third bi-monthly policy review of the financial year. It was fourth rate cut by the central bank in a row. The short-term lending rate now stands at 5.40 per cent. The MPC felt standard 25 bps rate cut might have been and 50 bps rate cut a bit excessive, RBI Governor Shaktikanta Das told reporters.

Four out of six committee members voted in favour of the 35 bps rate cut. Persistent weakening of core inflation has kept the headline rate below the central bank’s 4 per cent target for the 11th straight month in June and, thus, the rate cut was largely in line with Street expectations.

RBI had cut the policy rate by 75 basis points prior to this, through three rate cuts of 25 bps each in February, April and June. Wednesday’s rate cut increased the tally to 110 basis points. “The committee seems to have tried to tread a middle path by cutting rates but by an odd amount of 35 basis points instead of the usual 25 bps or 50 bps. Markets had already factored in 25 bps cut and so a 25 bps cut may not have enthused markets,”Dheeraj Singh, Head of Investments at Taurus Asset Management.

The central bank has maintained its accommodative stance on the policy. “The MPC felt it was prudent to remain accommodative,” Das said. “Understand that economic slowdownis cyclical and not deep structural slowdown,” Das told reporters. The rate cut has sent a strong signal to domestic banks to cut lending rates before the busy festive season kicks off in September.

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