Published: Wed, August 07, 2019
Markets | By Otis Pena

RBI cuts rates again to try to speed up growth

RBI cuts rates again to try to speed up growth

The reverse repo rate was reduced to 5.15%.

With a 35 basis points cut in interest rates, it is highly likely that banks would reduce interest rates on home loans, vehicle loans, auto loans etc.

Indeed, the RBI lowered its economic growth forecast to 6.9% from 7% for the current fiscal year, and said it sees inflation remaining inside its target range over a 12-month horizon.

Adopting a middle path, the six-member monetary policy committee (MPC) of the Reserve Bank of India (RBI) on Wednesday chose to slash the repo rate by 35 basis points (bps) to 5.4 per cent. Overall, banks reduced their WALR (weighted average lending rates) on fresh rupee loans by 29 bps during the current easing phase so far (February-June 2019), the statement added.

The RBI's move came hours after the New Zealand central bank's decision on Wednesday to cut its rates by a steep 50 basis points, while flagging the possibility of going nuclear and taking rates below zero, a radical shift that drove the Kiwi dollar to three-and-a-half year lows. The growth slipped to 5.8 per cent in the fourth quarter (January to March). "Various high frequency indicators suggest weakening of both domestic and external demand conditions", said the Reserve Bank of India, adding that it had revised the projection downwards to 6.9%.

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The Reserve Bank of India (RBI) on Wednesday cut its benchmark interest rates for a fourth straight meeting, and by slightly more than expected, highlighting the depth of its concern about economic growth that's slid to its slowest pace in almost five years.

Real Gross Domestic Product growth for 2019-'20 in the committee's June resolution was projected at 7%.

"The downward revision of the FY 20 GDP growth rate to 6.9 per cent with downward risk is a dovish signal", said V.K. Vijayakumar Chief Investment Strategist at Geojit Financial Services.

Reserve Bank governor Shaktikanta Das Wednesday said the economy is in the midst of a cyclical slowdown and not a structural one, and exuded confidence of growth reviving soon on the back of cheaper money and likely more government measures.

"In the US, the equity market recovered most of the losses suffered in May, boosted by dovish guidance by the US Fed and some transient respite in trade tensions with China", the central bank said. It also noted that economic activity remained weakened in major emerging market economies. The domestic currency was trading at 70.91 at 1215 hrs, down 10 paise over its last close.

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