The Reserve Bank of India (RBI) Monetary Policy Committee (MPC) on Thursday decided to cut the repo rate by 25 basis points reducing the interest rates for third time in a row. After a three day review meeting, the MPC takes an accommodative stance.
In a major boost to digital transactions, Reserve Bank has also decided to removes charges on all NEFT (National Electronic Funds Transfer) and RTGS (Real Time Gross Settlement) transactions. The RBI also said it will form a internal panel to review the charges levied on ATM transactions.
RBI Governor Shaktikanta Das, who chaired the MPC, announced the committee’s decision in the second bi-monthly monetary policy statement for 2019-2020. He said the committee decided to change its stance from neutral to accommodative unanimously.
With the economy witnessing a crawling growth, in its last two review meetings, the Monetary Policy Committee has reduced the interest rates by 25 basis points in each review respectively.
Explaining the reason for taking an ‘accommodative’ stance, the MPC statement said “It is in this context that central banks across the world have moved to an accommodative stance in setting monetary policy. Financial markets have been unsettled by the acrimonious US-China trade tensions. Crude oil prices remained volatile, 2 reflecting evolving demand-supply conditions and geo-political concerns.”
Regarding inflation, the committee said it took into consideration the unchanged retail CPI inflation. It said higher inflation in food and fuel groups was offset by lower inflation in items excluding 3 food and fuel.
In fact, that the headline inflation has remained below targeted levels even after considering the expected transmission in the last two policy rate cuts. The current policy is expected to boost demand and private investment activity.
The MPC also revised the projection of Gross domestic Product (GDP) for 2019-20 to 7.0 percent. The current stance is set to boost trade and manufacturing sectors which have been witnessing slowdown.
Regarding financial markets the committee said it has decided to constitute an Internal Working Group to review comprehensively the existing liquidity management framework.