The Reserve Bank of India (RBI) on Thursday retained the country's gross domestic product (GDP) forecast for FY20 at 7.4 per cent. Addressing the media on Monetary Policy, RBI Governor Shaktikanta Das said GDP projection for 2019-20 is 7.4 per cent while the inflation rate is estimated at 3.2-3.4 per cent in the first half of the year 2019-20 and 3.9 per cent in the third quarter of 2019-20. This is the first rate cut announced by the MPC since August 2017. MCLR is the minimum interest rate that a bank will charge on the loan. "It also signals a commitment to a symmetric policy to achieve its 4 per cent inflation target - a departure from the RBI's previous one-sided, conservative stance that aimed to keep inflation below the target."- Abhishek Gupta, Bloomberg Economics.
This was also the last meeting of the MPC before the Election Commission announces the dates for the Lok Sabha elections.
The government was believed to be unhappy with the RBI over a number of issues, including its apparent reluctance to cut rates to stimulate the economy.
The committee ignored the inflationary impact of the interim budget, choosing to not look at many off-balance sheet items even as RBI Governor Shaktikanta Das told mediapersons that the bank would always be data-driven.
The central bank committee also made a decision to stick to the Central Statistical Organization's growth estimate of 7.4% for 2019-20 and a range of 7.2%-7.4% for the first half of the next fiscal year. Mr Das also hinted at more rate cuts in future as inflation is slowing down.
"The MPC will now be looking at a balance of growth and inflation rather than just focusing on inflation alone", said Teresa John, an economist at Nirmal Bang Equities Pvt.in Mumbai.
Justifying its decision to cut rates, the MPC said headline inflation is projected to remain soft in the near term "reflecting the current low level of inflation and the benign food inflation outlook". "Investment activity is recovering but supported mainly by public spending on infrastructure". "The need is to strengthen private investment activity and buttress private consumption".
Other uncertainties flagged by the MPC include uncertain monsoons, volatile vegetable prices, hazy oil price outlook, further heightening of trade tensions and geopolitical uncertainties, the unusual spike in the prices of health and education, and volatile financial markets.
Four of six members of the MPC voted to cut the rates, while all six voted for a change in the stance.
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