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RBI cuts rates to decade low

The Reserve Bank of India today announced its fifth straight cut in key lending rates in a bid to revive country’s stalled economic growth. The measure is likely to make home, auto and other loans cheaper should banks pass on the benefit to borrowers.

The RBI’s Monetary Policy Committee (MPC) at its meeting voted to cut repo rate — at which banks borrow money from the RBI — by 25 basis points to a 10-year low of 5.15 per cent. The previous lowest repo rate of 5 per cent was recorded in March 2010. The reverse repo rate was also lowered to 4.9 per cent. All six MPC members voted in favour of the rate cut.

The Central bank also revised downwards its estimate for GDP growth to 6.1 per cent from 6.9 per cent. After the announcement, RBI Governor Shaktikanta Das indicated there was room for further rate cuts if the growth rate remained low.
“The RBI will continue accommodative stance as long as it is necessary and growth revives,” he said.

The RBI admitted that banks were slow in transmitting lower rates to borrowers. Interest rates have been cut 110 basis points in the past four meetings of the MPC, but their transmission to borrowers “remained staggered and incomplete”.

The RBI said as against the cumulative policy repo rate reduction of 110 bps during February-August, the weighted average lending rate (WALR) on fresh rupee loans of commercial banks declined by 29 bps.

However, the WALR on outstanding rupee loans increased by 7 bps during the same period, it noted.

Das said the 135 bps cut in rates would take time to filter through the economy.

“While the recent measures announced by the government are likely to help strengthen private consumption and spur private investment activity, the continuing slowdown warrants intensified efforts to restore the growth momentum,” the Central bank said.

Fielding questions on the collapse of the PMC Bank, Das said the country’s banking system remained robust. “Our banking system remains sound and stable… there is no reason for unnecessary panic,” he said.

Das maintained the RBI had acted promptly in the case of the PMC Bank and restricted withdrawals. The RBI would review all regulations of cooperative banks and discuss with the government if required, he said.

Accommodative stance to revive growth

Repo rate or short-term lending rate lowered by 25 basis point to 5.15%. This is the fifth rate cut this year

RBI stays with accommodative monetary stance to revive economic growth

Government stimulus steps to help strengthen consumption and spur investment

Retail inflation projection for second half of year retained at 3.5-3.7%

RBI notes monetary transmission has been ‘staggered and incomplete’

Have no reason to doubt govt commitment on fiscal targets, says RBI Governor

Next monetary policy review meet scheduled for Dec 3-5

How India INC REACTs

The fifth consecutive rate cut failed to cheer the industry because of depressing news from other sectors – cut in GDP projection this fiscal, pvt final consumption expenditure slowing down to 18-quarter low & muted growth in gross fixed capital formation

CII DG Chandrajit Banerjee said the RBI had been induced to employ continuous rate cutting due to growth slowdown in the first quarter along with benign inflation print in the wake of normal monsoons

Federation of Indian Export Organisation chief SK Saraf said the rate cuts were owing to challenges faced by global economy with advanced and emerging markets both showing a weakening demand

The FIEO chief urged banks to ensure the cut in rates were adequately reflected in the lending rates so that private investment is encouraged and consumer loans get a push to help various segments

‘Growth lower than expected’

“And we do want to have this growth probably at 6.5 per cent this year, which is lower than what we expect. We want it to go up to 8 per cent sooner rather than later Barack” — Rajiv Kumar, NITI Aayog Vice-Chairman

Will revisit co-op bank norms: Das

“Banking sector remains sound and stable and there is no reason for panic… Will take a fresh look at regulatory framework of the co-op banks.” — RBI Governor