Mumbai:
The Reserve Bank of India (RBI) has slashed its key lending rate, or the repo rate, by 50 basis points to 5.5% as inflation softens within its comfort level. The decision was unanimously taken at the bi-monthly Monetary Policy Committee (MPC) meeting. which was held on June 4-6 and was headed by RBI Governor Sanjay Malhotra.
This comes as a relief for borrowers who may expect lower EMIs for long-term loans and may be especially beneficial for homebuyers.
Mr Malhotra asserted that the global backdrop remains fragile, and trade projections have been revised downwards, but the Indian economy is progressing well despite the global uncertainties.
“India’s strength comes from the strong balance sheets of the five major sectors. The Indian economy offers immense opportunities to local and foreign investors. We are already growing at a fast rate. We aspire to grow faster,” he said.
Inflation has softened significantly, the RBI Governor said, and the near-term and medium-term outlook exudes confidence. Food inflation outlook remains soft, and core inflation is expected to remain benign.
The RBI also projected that retail inflation for the current financial year would be 3.7% against its April projection of 4%. Government data shows it fell to 3.16% in April from 3.34% in March, remaining within the RBI’s comfort level.
The various economic indicators remain strong, with the RBI Governor pointing to a gradual rise in discretionary spending and healthy private consumption. Industrial activity is gaining gradually while the services sector is likely to maintain momentum, he said. Rural demand remains steady while urban demand is improving, he added.
The RBI kept the Gross Domestic Product (GDP) growth projection unchanged at 6.5% in the current financial year. The quarterly projections are: 2.9% (April-June), 3.4% (July-September), 3.9% (October-December), and 4.4% (January-March).
The central bank also reduced the cash reserve ratio (CRR) by 100 bps and said it will release Rs 2.5 lakh crore of bank funds. CRR refers to the percentage of total deposits that banks must hold in liquid form with the RBI.
India continues to be an attractive investment destination, assured Mr Malhotra, adding that the forex reserves stand at $691 billion, which is sufficient to fund more than 11 months of goods imports.