RBI MPC decisions to boost domestic growth amid global economic turmoil: CII
The Reserve Bank of India’s (RBI) accommodative monetary policy, combined with the government's growth-centric fiscal policy, will help boost domestic growth amid global economic turmoil, the Confederation of Indian Industry (CII) said on Wednesday.
Terming the central bank’s decision to continue with the rate easing cycle by reducing the repo rate by 25 basis points to 6.0 per cent as “timely and prudent,” Chandrajit Banerjee, Director General of CII, said the rate cut coupled with the shift in monetary policy stance from 'neutral' to 'accommodative,' too, is a big positive.
"This change, which CII has long advocated, firmly emphasises the Central Bank's pro-growth approach while maintaining vigilance regarding inflation outlook,” Banerjee said in a statement.
The RBI’s rate cut, and stance change, reflect concerns about the impact of slower global growth on domestic economic growth and a relatively benign outlook for domestic inflation.
Moreover, with real interest rates being still high at 2.6 per cent after the rate cut in February, there was an urgent need for the rates to come down further to boost investment demand, according to the apex industry chamber.
The benefits of this rate cut are set to be passed to the consumers on an immediate basis, which will be crucial to boost consumption. Lower borrowing costs can aid housing affordability too.
RBI Governor Sanjay Malhotra said the decision to cut the repo rate has been taken unanimously by the Monetary Policy Committee (MPC) keeping in mind the macroeconomic and financial conditions and outlook.
The RBI Governor further stated that while inflation has come down in the Indian economy, the central bank would remain vigilant due to the global risks posed by the hike in US tariffs. He said that the RBI will ensure adequate liquidity in the banking system.
This is the second consecutive 25 basis reduction in the repo rate after it was reduced in February for the first time since May 2020. A lower policy rate leads to a decline in interest rate on bank loans which makes borrowing easier for consumers as well as businesses resulting in higher consumption and investments in the economy leading to higher growth.
