What are key components of the latest monetary policy release of the RBI?
The Monetary Policy Committee (MPC) headed by the RBI governor has released the new monetary policy which outlines the following decisions:
- The repo rate which is the key lending rate has been reduced by 25 basis points to 5.15 per cent. This has triggered hopes for cheaper loans during the festival season.
- The repo rate at 5.15 per cent is at its lowest level in nine years, aided by the fifth rate cut in as many monetary policies since February 2019. This brings down the cumulative rate cut to 135 points in the calendar year 2019.
- The rate cut was decided to address the growth concerns by reinvigorating domestic demand within the flexible inflation targeting mandate as the inflation is expected to remain below target in the remaining period of 2019-20 and the first quarter of 2020-21.
- The GDP estimates by the MPC suggests that India’s GDP is set to grow at 6.1 per cent in 2019-20, significantly lower than the 6.9 per cent growth estimates it had put out in the previous policy in August.
- Putting the onus on the government the MPC has suggested that more policy measures were needed to engineer a quick turnaround in the Indian economy that has seen its growth rate slump to 5 per cent.
The rate cut will push banks to cut rates on certain loans and deposits since RBI had already directed them to link their interest rates to a benchmark rate like the Repo rate.