Finanace Ministry positive on RBI decsion, change in stance
New Delhi: The Finance Ministry is positive on the RBI monetary policy panel’s decision to cut the repo rate by 25 basis points (effecting a third consecutive reduction in 2019 and the all important change in its stance from “neutral to accomodative”), which would pave the way for consideration by RBI for any further rate cut.
There is so far no official response from the North Block on the RBI decision, but sources said the Monetary Policy Committee (MPC) decision would be helpful for reviving growth, consumption, investment and demand. On Wednesday, the government had announced two cabinet panels — one on growth and another on employment to tackle the slowdown.
An accomodative RBI stance is more important for the government as it can then expect central bank’s support to boost growth, sources said.
Finance Secretary Subhash Chandra Garg had earlier said that slowdown could continue in the first quarter of this fiscal after the economy reported a 18-quarter low growth of 5.8% in Jan-March quarter.
On interest rate cut by the RBI, Garg had said that Monetary Policy Committee would consider benign inflation and other factors, including slowdown, and take a view on the rates.
The Reserve Bank of India on Thursday cut its policy interest rate by 25 basis points to 5.75% in a widely expected move while also changing its monetary policy stance to “accommodative” after the economy grew at its slowest in over five years.
All six of the MPC members voted for a 25 basis points cut and for the policy stance to be changed to “accommodative” from “neutral” underlying the importance of the acknowledgement of economic slowdown.
“A sharp slowdown in investment activity along with a continuing moderation in private consumption growth is a matter of concern,” the MPC said in its statement.
The RBI lowered its growth forecast to 7 per cent from the April view of 7.2 per cent for the 2019/20 April-March fiscal year. It marginally raised its retail inflation outlook for the first half of fiscal 2019-20 to a range of 3% to 3.1% from a range of 2.9% to 3% that it had outlined in April.
It slightly cut down its inflation outlook for the back half of the year however, to 3.4% to 3.7% from its earlier projection of 3.5% to 3.8%.
