RBI cuts interest rate by 25 bps, revises GDP growth to 7%

The policy decision will be announced at 11:45 a.m. in Mumbai followed by a press conference 15 minutes later by Das

The Reserve Bank of India (RBI) cut its benchmark interest rate for a third straight time, and paved the way for more policy easing to support an economy growing at the slowest pace since 2014.

Weak global demand due to an escalation in trade wars may further impact India's exports and investment activity, the central bank believes.

The six-member monetary policy committee (MPC), headed by RBI Governor Shaktikanta Das took the call, amid falling economic growth and uncertain global scenario.

Asia's third largest economy grew at a much slower-than-expected 5.8% annually in the January-March quarter, according to official data released on Friday.

The current policy repo rate is at 6 percent, while retail inflation stood at 2.92 percent in April.

Two new cabinet committees were announced on Thursday to find ways to spur job creation and investment.

Addressing a press conference after the MPC meeting, RBI Governor Shaktikanta Das said the government had broadly followed the fiscal consolidation roadmap over the last five years, and he expected it to remain fiscally prudent.

In the April monetary policy, the growth of Gross Domestic Product (GDP) for 2019-20 was projected at 7.2 per cent - in the range of 6.8-7.1 per cent for the first half of the fiscal and 7.3-7.4 per cent for the second part - with risks evenly balanced. The inflation outlook for the back half of the fiscal year in March was put at 3.4-3.7%, down from an earlier projection of 3.5-3.8%.

Many experts were expecting RBI to cut the rates by at least 25 basis points.

The move is expected to lead to reduction of lending rate by banks leading to lower EMI for housing, auto loan and corporate borrowers.

A series of defaults by Infrastructure Leasing and Financial Services (IL&FS) a year ago, has also stirred major unease over the health of Indian's non-banking finance companies, raising fears of a contagion and pushing up their borrowing costs.

The brokerage said its activity indicator also signals weakness for 1-2 quarters more but added that the growth can be pushed up to 7.5 per cent in FY20 if the RBI cuts rates by 0.50 per cent and also if the state-run lenders are adequately recapitalised using the excess RBI capital identified by the Bimal Jalan report.

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