The Reserve Bank of India (RBI) has reduced the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 5.75 per cent from 6.0 per cent with immediate effect. Consequently, the reverse repo rate under the LAF stands adjusted to 5.50 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 6.0 per cent. The decision was unanimously taken by the Monetary Policy Committee (MPC) on the basis of an assessment of the current and evolving macroeconomic situation, the RBI said in its Second Bi-monthly Monetary Policy Statement, 2019-20. The MPC also decided to change the stance of monetary policy from neutral to accommodative.
“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 +/- 2 per cent, while supporting growth,” the RBI statement said. The MPC noted that growth impulses have weakened significantly as reflected in a further widening of the output gap compared to the April 2019 policy. “A sharp slowdown in investment activity along with a continuing moderation in private consumption growth is a matter of concern. The headline inflation trajectory remains below the target mandated to the MPC even after taking into account the expected transmission of the past two policy rate cuts. Hence, there is scope for the MPC to accommodate growth concerns by supporting efforts to boost aggregate demand, and in particular, reinvigorate private investment activity, while remaining consistent with its flexible inflation targeting mandate.”
