RBI cuts repo rate to 6%, lowers GDP forecast to 7.2%

RBI cuts repo rate to 6%, lowers GDP forecast to 7.2%

1. The six-member Monetary Policy Committee of the Reserve Bank of India has cut its benchmark policy rate, repo rate by 0.25% to 6%. Repo stands for ‘Repurchasing Option’. It refers to the rate at which commercial banks borrow money from the RBI. The rate cut comes in the backdrop of a slowdown in consumption. demand, weakening investment activity and overall moderation in growth.
2. However, the central bank kept the monetary policy stance unchanged at Neutral due to uncertainty over the monsoon. The neutral stance means RBI will alter rates in any direction to control the money supply in the system.
3. The RBI also revised its Gross Domestic Product(GDP) growth forecast for 2018-19 down to 7.2% from 7.4%. The RBI said that there are some signs of domestic investment activity weakening as reflected in a slowdown in production and imports of capital goods and the moderation of growth in the global economy might impact India’s exports.
4. The RBI has also said that higher financial flows to the commercial sector is good for the economic activity. It further said that the private consumption, which has remained weak is also expected to get a boost from public spending in rural areas and an increase in disposable incomes of households due to tax benefits.
5. RBI has said that alternative farm support schemes and farm loan waivers announced by some states, higher minimum support prices, food procurement and lower direct tax collections could put pressure on the combined fiscal deficit.
6. Further, it said that the inflation is also expected to move up due to upside risk of higher crude oil prices, volatility  in international financial markets, the risk of a sudden reversal in the prices of perishable food items and fiscal slippages.
7. The Monetary Policy Committee(MPC) is a committee of the Reserve Bank of India. It is headed by its Governor which is entrusted with the task of fixing the benchmark policy interest rate (repo rate) to contain inflation within the specified target level i.e. inflation targeting.