RBI cuts repo rate by 50 bps to 5.50 pc
Mumbai, June 6 (UNI) The Reserve Bank of India (RBI) on Friday in its second bi-monthly monetary policy of FY26. cut the repo rate by 50 basis points (bps) to 5.50 pc from 6.00 pc earlier. This is the central bank's third consecutive repo rate cut.
RBI Governor Sanjay Malhotra-led Monetary Policy led committee decided to cut the Cash Reserve Ratio (CRR) by 100 basis points (bps) to 3% from 4% earlier releasing Rs 2.5 lakh crore of lendable resources to the banking system.
The MPC also decided to change the policy stance to 'Neutral' from 'Accommodative' in a bid to support economic growth. This RBI's rate cut decision is expected to stimulate borrowing and investment, leading to a higher growth rate. The policy panel retained growth estimate at 6.5 per cent but projected a lower inflation of 3.7 per cent in the current fiscal.
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.
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