The Reserve Bank of India has cut down the policy repo rate by 25 basis points. The central bank explained that this has been done to boost liquidity and maintain the “goldilock” economy. The latest global headwinds have prompted several efforts to boost domestic consumption and economic productivity, including the latest GST reforms, tax benefits, and labour reforms.
The six-member Monetary Policy Committee of the RBI had unanimously voted to reduce the repo rate by 25 basis points, while maintaining a neutral stance as in the previous meeting. The current rate is at 5.25%. A total of 125 basis points has been cut since February, which is the highest since 2019. During a video address, the RBI governor Sanjay Malhotra said that India is in a “rare goldilocks” zone.
He highlighted that India has faced disinflation since October, which breached the Central Bank’s tolerance threshold, but despite disruptions, growth has been steady for the economy. He further said that the macroeconomic conditions give policy space for growth. Economist Garima Kapoor stated that there can be another cut, as no overheating has been witnessed in the economy.
The central bank has also conducted open market operations to buy bonds of 1 trillion rupees this month, along with 5 billion forex swaps to add liquidity in the system. The GDP forecast for the current year has also been revised from 6.8 per cent to 7.3 per cent, as inflation projections were reduced from 2.6 to 2 per cent.
India is currently the fifth largest economy, the fastest growing economy in the world, and the third largest in terms of purchasing power parity. Its growth has reached a sharp rise of 8.2% in the July-September quarter, but as per experts and economists, the growth is expected to come down as the full effect of the 50 per cent penalty tariff is yet to show in the textile and labour-intensive sectors.
The RBI governor also cautioned that the growth may possess “downside risks” due to global disruptions.
