(MENAFN- Khaleej Times) India's central bank has cut its key interest rate by a quarter of a percentage point to 5.75% from 6% with immediate effect to fortify the economy as consumer spending and corporate investment falter.
The interest rate is what the Reserve Bank of India charges on lending to commercial banks. In a bimonthly review of the economy released on Thursday, it also decided to change the stance of monetary policy from neutral to accommodative
The central bank noted that inflation remains below its target, even after earlier rate cuts. It also expressed concern over a sharp slowdown in consumer demand and investment.
Lower interest rates help make credit cheaper for borrowers, though they can also spur inflation.
Following are the highlights of the second bi-monthly monetary policy:
* Repo rate reduced by 25 bps to 5.75 pc for third time in a row.
* Reverse repo rate now stands at 5.50 pc, marginal standing facility (MSF) rate 6 pc.
* RBI changes policy stance to accommodative from neutral.
* Cuts GDP growth forecast to 7pc from 7.2 pc for FY20
* Raises retail inflation forecast for Apr-Sept to 3-3.1 pc and 3.4-3.7 pc in
Oct-Mar.
* 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 August
* Flags sharp slowdown in investments, moderation in private consumption growth as concern.
* All six MPC members voted in favour of 0.25 pc policy rate cut.
* Average daily surplus liquidity in the system at Rs 66,000 crore in early June.
* Foreign Exchange Reserves stood at $421.9 billion on May 31, 2019.
* Next monetary policy statement on August 7.
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