RBI cuts rate by 25 bps; slashes GDP forecast sharply

The Reserve Bank of India (RBI) announced 25 basis points policy interest rate cut in its fourth bi-monthly monetary policy on Friday, bringing down the repo rate to 5.15%. It took the market by surprise, which expected a little less.

However, the central bank drastically reduced the growth estimates by 80 bps to 6.1% from 6.9%, because of a slowdown in the economy.

The last time repo rate was lower than this was way back in 2009, when it stood at 5%.

The RBI's MPC voted unanimously in favour of maintaining the accommodative stance, but the magnitude of cut was differed by the members. Five members of the committee (Chetan Ghate, Pami Dua, Michael Debabrata Patra, Bibhu Prasad Kanungo and Shaktikanta Das) voted to reduce the policy repo rate by 25 basis points, while Ravindra H Dholakia voted to reduce the policy repo rate by 40 basis points.

RBI Governor Shaktikanta Das said the rate cut comes amid a slowing global economic growth, increasing trade tensions and a volatile geo-political environment. He said that inflation forecast in April-June was in alignment with RBI's June projection and therefore it was not revising the inflation forecast for 2019-20.

The central bank has also maintained the inflation targets.