RBI cuts rates by 0.25% to support growth


File photo: Reserve Bank of India

File photo: Reserve Bank of India

The Reserve Bank on Friday cut its key rates by 0.25 per cent to boost economy from six-year low saying reduction was necessary to revive growth.

With first quarter GDP growth plunging to 5 per cent, the RBI cut its estimate of economic growth in the current fiscal to 6.1 per cent from its earlier estimate of 6.9 per cent.

The repo rate, at which it lends to the system, has been brought down to 5.15 per cent to help reduce borrowing costs for home and auto loans, which are now directly linked to this benchmark.

This is the fifth straight cut in rates by the Reserve Bank in its key rates in as much policy reviews in 2019, and takes the total quantum of reductions to 1.35 per cent.

Governor Shaktikanta Das said the Reserve Bank has no doubt over government commitment to meet the fiscal deficit target this fiscal after, despite the massive tax giveaways of Rs 1.45 lakh and falling indirect tax collections.

The budget has set the fiscal deficit target at 3.3 percent of GDP for the current fiscal but the steeply falling GST collections and the historic cut in corporate taxes have raised concern over the maintainability of the target. Many analysts have pegged that the government will miss the target by a wide margin of 70-80 bps.

“The government has made a statement that they will adhere to the fiscal deficit target. Therefore, we have no reason to doubt the commitment to maintain the numbers as given in the budget,” Das told reporters after announcing the fourth bi-monthly monetary policy where the central bank lowered the rate by 25 bps to 5.15 percent–the fifth in 2019.

He said the government has several sources of revenue to meet the fiscal target.

“So whatever short fall is expected because of corporate tax rate cuts, the government has the option of increasing or making it up from other sources,” he said.

Last month, the finance minister had announced tax cuts for corporates by 10-12 percent to 25.17 percent, involving a revenue loss of Rs 1.45 lakh crore this fiscal.