Mumbai:

Governor Sanjay Malhotra announced that the rate has been slashed the key repo rate by 50 bps from 5.75 per cent to 5.50 per cent. He also said Indian economy presents strength, stability and opportunity amid global concerns. After reducing repo by 100 bps in quick succession, monetary policy left with limited space to support growth, he added.

"When Central banks are facing a tough time, Indian economy offers strength and stability and opportunity amid tough time. Indian economy progressing well, broadly on expected lines despite global uncertainties. After reducing repo by 100 bps in quick succession, monetary policy left with limited space to support growth," he said. He also said government continued thrust on capex should help revive investment activity.

The Reserve Bank of India (RBI) announced its bi-monthly monetary policy on Friday, in line with expectations running high for another rate cut to boost economic growth, which has been facing pressure from global trade disruptions. RBI has retained GDP growth forecast for current fiscal at 6.5 pc amid geopolitical tensions and weather vagaries that pose headwinds.

The RBI Governor also mentioned that the reason for repo cut is that the inflation softened, near-term and medium-term alignment is within RBI range, and food inflation remains soft." Consequently, the Standing Deposit Facility Rate, which is the SDF Rate, shall stand adjusted to 5.25 per cent, and the Marginal Standing Facility MSF Rate and the Bank Rate shall stand adjusted to 5.75 per cent.

Malhotra continued, “Inflation has softened significantly over the last six months, from above the tolerance band in October 2024 to well below the target. The latest numbers are 3.2 per cent, with signs of broad-based moderation. The near-term and medium-term outlook now gives us confidence of not only a durable alignment of headline inflation with the 4 per cent target, you are aware we had earlier projected an average inflation of 4 per cent for this year, as stated in the last meeting, but also the belief that during the year, it is now likely to undershoot the target at the margin.”

He said RBI would continue to monitor evolving liquidity situation and financial market condition and take proactive measures. According to him, various economic indicators remain strong. The RBI Governor pointed to a gradual rise in discretionary spending and healthy private consumption. He said industrial activity is gaining gradually while the services sector is expected to maintain momentum and rural demand remains steady while urban demand is improving.

The Indian economy offered attractive opportunities for both domestic and foreign investors, he added. The uncertainties regarding rabi crops have abated considerably and the second advance estimates point to a record wheat production and higher production of key pulses over that last year. Robust kharif arrivals, are also expected to set the stage for a durable softening of food inflation, he added.

According to the RBI, the sharp decline in inflation expectations would also help anchor inflation expectations, going ahead. Furthermore, the fall in crude oil prices augurs well for the inflation outlook.

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