Fourth Bi-Monthly Monetary Policy: As was widely expected, the Reserve Bank of India (RBI) cut the repo rate or key lending rate by 25 basis points while maintaining an accommodative stance. This is the fifth consecutive rate cut by the apex bank this year, aggregating to 135 bps.
Fourth Bi-Monthly Monetary Policy
- The monetary policy is formulated by the Reserve Bank of India and relates to the monetary matters of the country.
- The policy involves measures taken to regulate the supply of money, availability, and cost of credit in the economy.
- The various instruments of monetary policy include variations in bank rates, other interest rates, selective credit controls, supply of currency, variations in reserve requirements and open market operations.
Fourth Bi- monthly highlights:
- With a further widening of the output gap, the Monetary Policy Committee (MPC) reduced the repo rate by 25 basis points (bps) to 5.15 percent in the October 2019 policy review.
- With this, the benchmark rate has been cumulatively cut by a substantial 135 bps over the five consecutive policy reviews in 2019.
- The considerable loss of economic growth momentum remains the chief policy focus amid a relatively benign inflation outlook.
- The decision to reduce the policy rate and maintain the stance as accommodative was unanimous although one of the six MPC members voted for a larger rate cut of 40 bps.
- The MPC highlighted that the sobering impact of the subdued global growth outlook would keep prices of commodities, including crude oil, in check.
- Moreover, weakness in domestic demand as well as the pricing power of producers would restrain inflation in output prices.
- RBI said government stimulus measures will help strengthen private consumption and spur investments.
- RBI has decided to create a separate category of NBFC, viz., Non-Banking Financial Company-Micro Finance Institution (NBFC-MFI).
- The RBI forecasts that crude oil prices may remain volatile in the near-term; while global demand is slowing down, the persisting geo-political uncertainties pose some upside risks to the inflation outlook.
- A repo rate cut allows banks to reduce interest rates for consumers and lowers equal monthly installments on home loans, car loans and personal loans.
- RBI has cut GDP growth estimates also for 2019-20 to 6.1% from 6.9% earlier.
Monetary Policy Rates 2019
| Policy Rates | 3rd bi- monthly | 4th bi- monthly |
| Repo Rate | 5.40% | 5.15% |
| Reverse Repo Rate | 5.15% | 4.90% |
| Marginal Standing Facility | 5.65% | 5.40% |
| Bank Rate | 5.65% | 5.40% |
| Cash Reserve Ratio | 4% | 4% |
| Statuatory Liquidity Ratio | 18.75% | 18.75% |
| GDP forecast | 6.9% | 6.1% |
The MPC’s decision to retain the accommodative stance for as long as necessary to revive growth suggests that further rate cuts may be forthcoming.The industry is also looking forward to RBI’s views on key topics like growth, inflation and fiscal deficit.
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