RBI governor Shaktikanta Das (Reuters file)
RBI governor Shaktikanta Das (Reuters file)

RBI cuts repo rate by 25 basis points, slashes GDP growth estimates

  • Economist had expected RBI to cut repo rate by 25 basis points
  • Retail inflation remained below the RBI's medium-term target of 4% for a 13th straight month in August

The Reserve Bank of India (RBI) today cut its benchmark interest rates (repo rate) for the fifth time this year to boost economic growth. The RBI today cut repo rate by 25 basis points to 5.15%, which takes its cumulative cuts so far this year to 135 bps. The RBI also cut its GDP growth estimates to 6.1%, from earlier estimate of 6.9%.

The RBI's monetary policy committee also decided to continue with an accommodative stance.

Economist polled by Reuters had expected a 25-basis-point cut. India's economy expanded just 5% in the June quarter, its slowest pace since 2013.

To revive slowing growth, the government last month announced a sharp cut in the corporate tax rate - to 22% from 30%.

"Various high frequency indicators suggest that domestic demand conditions have remained weak. The business expectations index of the Reserve Bank’s industrial outlook survey shows muted expansion in demand conditions in Q3. Export prospects have been impacted by slowing global growth and continuing trade tensions," the RBI said in a statement.

"On the positive side, however, the impact of monetary policy easing since February 2019 is gradually expected to feed into the real economy and boost demand. Several measures announced by the Government over the last two months are expected to revive sentiment and spur domestic demand, especially private consumption," the RBI added.

Retail inflation in August accelerated to a 10-month high but remained well below the RBI's medium-term target of 4% for a 13th straight month.

The RBI had earlier mandated banks to link all fresh floating rate home and auto loans to an external benchmark like the repo rate or the rate on short-term treasury bills since the start of this month.

Five members of the MPC voted to reduce the policy repo rate by 25 basis points. One MPC committee member, Ravindra H. Dholakia, had voted to reduce the repo rate by 40 basis points.