The Reserve Bank of India on Thursday announced the second bi-monthly monetary policy. The RBI reduced Repo rate by 25 bps to 5.75 per cent for third time in a row. Therefore, home and car loans will be cheaper.
The central bank also lowered the economic growth forecast for the current fiscal to from 7.2 per cent to 7 per cent. The RBI took this step because of slowdown in domestic activities and escalation in global trade war. Prior to this, the growth of Gross Domestic Product (GDP) for 2019-20 was projected at 7.2 per cent.
According to data for January-March quarter of 2018-19, domestic investment activity has weakened and overall demand has been weighed down partly by slowing exports. Weak global demand due to escalation in trade wars may further impact India’s exports and investment activity.
Talking about the RBI policy, Khushru Jijina, MD, Piramal Capital and Housing Finance, said, “The downward revision of growth projection by the Reserve Bank of India (RBI) from 7.2 per cent to 7 per cent in 2019-20 calls for the implementation of additional rapid policy interventions by both RBI as well as the Government. The unanimous decision by the Monetary Policy Committee (MPC) to cut the repo rate by another 25 bps is a step in the right direction.”
He further added, “NBFCs are instrumental in providing credit to MSMEs and real estate sectors, that are significant to India’s GDP. MSMEs contribute 31 per cent of the GDP, 40 per cent of exports and hires 25 per cent of the labour force while real estate contributes more than 5 per cent to GDP and hires 17 per cent of the labour force directly or indirectly.
The credit crunch in the NBFC sector has witnessed a corresponding decline in manufacturing and construction activities in the last two quarters of 2018-19. We anticipate more decisive and pro-active policy measures to address the current liquidity crisis, that will enable NBFCs to restore lending activities, especially to these critical sectors.”
Highlights of monetary policy:
- Repo rate reduced by 25 bps to 5.75 per cent for third time in a row
- Reverse repo rate now stands at 5.50 per cent, marginal standing facility (MSF) rate 6 per cent
- RBI changes policy stance to accommodative from neutral
- Cuts GDP growth forecast to 7 per cent from 7.2 per cent for FY20
- Raises retail inflation forecast for April-September to 3-3.1 per cent and 3.4-3.7 per cent in October-March
- Projects upward bias in food inflation in near term due to rising prices of food items
- Forecast risks to inflation trajectory from monsoon uncertainties, unseasonal spike in vegetable prices, crude oil prices, financial market volatility and fiscal scenario
- Waives RTGS and NEFT charges to promote digital transactions
- Sets up a panel to review ATM charges, fees levied by banks
- To issue draft guidelines for ‘on tap’ licensing of small finance banks by Aug
- Flags sharp slowdown in investments, moderation in private consumption growth as concern
- All six MPC members voted in favour of 0.25 per cent policy rate cut
- Average daily surplus liquidity in the system at Rs 66,000 crore in early June
- Foreign Exchange Reserves stood at USD 421.9 billion on May 31, 2019
- Next monetary policy statement on August 7