The Reserve Bank of India (RBI) cut its repo rate, or the rate at which it lends to banks, by 25 basis points to 6%. This is the second consecutive rate cut from RBI under new chief Shaktikanta Das, after a surprise rate cut in February. 41 of 43 economists surveyed by Bloomberg had expected the RBI to cut repo rate by 25 bps, amid weakening economic growth and subdued inflation outlook.
However, banks may be able to pass on the RBI’s rate cut to borrowers only to a limited extent, say analysts. Earlier, banks had only reduced their lending rates by a token 5-10 basis points after the RBI’s last 25 bps cut in February. Deposit growth has come down sharply and every bank is competing with another to attract depositors, a top banker told Reuters.
The monetary policy committee of the RBI also decided to maintain the neutral monetary policy stance while voting 4-2 in favour of the rate cut.
The RBI revised inflation outlook downwards to to 2.9-3% in the first half of this year and 3.5-3.8% for the second half but it warned of the upside risks to price pressures if food and fuel prices rise abruptly, or if fiscal deficits overshot targets.