The Reserve of India (RBI) in its updated monetary policy statement, has announced to cut the benchmark interest rate due to the slowdown in global economic activities. The Monetary Policy Committee (MPC), under the chairmanship of newly appointed governor Shaktikanta Das, has decided to “reduce the policy Repo rate under the Liquidity Adjustment Facility (LAF) by 25 basis points from 6.5 per cent to 6.25 per cent with immediate effect.”
This is the first instance since August 2017 that the central bank has decided to cut the interest rate. The Monetary Policy Committee in the Sixth Bi-monthly Monetary Policy Statement, 2018-19 also announced the change in policy stance from ‘calibrated tightening’ to ‘neutral’.
Shaktikanta Das, who was heading the Monetary Policy Committee for the first time since his appointment, in the press conference said that the shift in monetary policy stance from calibrated tightening to neutral provides flexibility and “the room to address the challenges to sustain growth of the Indian economy over the coming months, as long as the inflation outlook remains benign.”
The Monetary Policy Committee which decided to reduce the repo rate by a 4-2 vote count also declared that the reverse repo rate stands adjusted to 6.0 per cent whereas the marginal standing facility (MSF) rate and the Bank Rate to 6.5 per cent. According to the statement, the central bank’s decision is based on the objective to achieve the medium-term target for consumer price index (CPI) inflation of 4 per cent (within a band of +/- 2 per cent) for the upcoming fiscal year.