India cuts rates for 5th time amid economic slowdown, banking woes


This is the fifth straight rate cut by the central bank in as many policy reviews in 2019, and takes the total quantum of reductions to 1.35 per cent. With inflation in the economy benign and growth seeing a slump, the country's central bank's action was widely expected.

The Narendra Modi government has taken a slew of steps in the last month to revive growth including slashing effective corporate tax rates for all firms to 27 per cent.

The reduction in key policy rate by the RBI is expected to revive investment and encourage consumption, thereby kick-starting the sluggish economy, India Inc said on Friday.

All six members of the MPC favoured a rate cut - while five, including the RBI representatives, opted for a 25 basis points cut, independent member Ravindra Dholakia favoured a 40 basis points cut.

All members of the six-member monetary policy committee voted for a rate cut.

The central bank maintained its accommodative policy stance.

Friday's cut takes the benchmark lending rate to the lowest in nearly a decade and follows a number of fiscal steps taken by the government recently to spur growth, including a surprise reduction in corporate taxes.

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"The recent volatility in crude oil prices and the fiscal measures announced by the government will have an impact on inflation in the medium-term and the fiscal deficit", said Shanti Ekambaram, president of consumer banking at Kotak Mahindra Bank. The reverse repo rate is the rate at which the central bank borrows money from commercial banks.

The government has further taken note of higher projection of headline inflation by MPC for 2019-20, which is within the band of 3-4 per cent and well within the target range, it said.

Any scope for another rate cut?

On the PMC scam, Mr. Das said the RBI acted very swiftly and promptly after it was brought to its notice.

"We continue to expect the RBI MPC to follow RBI Governor into another "out-of-the-box" 35 basis points repo rate cut on October 4".

If the RBI delivers a 25 bps cut as expected, traders will focus on the wording and tone of the monetary policy statement for clues on further easing.

Banking sector crisis Yet, growth is not the only worry RBI has.