RBI Policy keeps repo rate at 6.50%; cuts SLR by 25 bps, slashes inflation projection

RBI Governor Urjit Patel-led monetary policy committee (MPC) on Wednesday maintained status quo on the short-term lending rate — repo rate — at 6.50 per cent in its fifth bi-monthly policy review of 2018-19.

Reverse repo — the rate at which the central bank borrows from banks — was kept unchanged at 6.25 per cent. However, the central bank cut the statutory liquidity ratio (SLR) by 25 basis points to 19.25 per cent.

RBI maintained ‘calibrated tightening’ stance and project H1FY20 GDP growth at 7.5 per cent.

As expected, no changes were made to the cash reserve ratio (CRR).

“The MPC decided to keep the policy repo rate on hold and maintain the stance of calibrated tightening. While the decision on keeping the policy rate unchanged was unanimous, Ravindra H Dholakia voted to change the stance to neutral,” RBI policy statement read.

The RBI also cut its inflation projection for second half of FY19 to 2.7-3.2 per cent from 3.9-4.5 per cent earlier.

Although Q2 growth was lower than that projected in the October policy, GDP growth in H1 has been broadly along the line in the April policy when for the year as a whole GDP growth was projected at 7.4 per cent, the RBI said.

It further added that lower rabi sowing may adversely affect agriculture and hence rural demand going forward. Financial market volatility, slowing global demand and rising trade tensions pose negative risk to exports. However, on the positive side.

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