RBI cuts the key Repo rate by 25 bps to 5.15% - USD/INR stays below 71.00

At its bi-monthly monetary policy meeting held on Friday, the Reserve Bank of India (RBI) cut its benchmark interest rate, Repo rate, by 25 basis points to 5.15%, as expected, making it the fifth rate cut so far this year.

Key Details:

Reverse repo rate falls to 4.90%.

All six monetary policy committee members voted in favour of cutting rates, retaining accommodative stance.

To continue with accommodative stance "as long as it is necessary" to revive growth, while ensuring inflation remains within target.

Headline inflation projection for Q2 2019/20 revised slightly upwards to 3.4% from 3.1%.

Real GDP growth projection for 2019/20 revised down to 6.1% from 6.9%.

Real GDP growth projection for Q1 2020/21 revised down to 7.2% from 7.4%.

Negative output gap has widened further.

Continuing slowdown "warrants intensified efforts" to restore growth momentum.

There is policy space to address growth concerns by reinvigorating domestic demand within flexible inflation targeting mandate.

Monetary policy transmission has remained staggered and incomplete.

CPI inflation projected at 3.4% in Q2 2019/20, 3.5% in Q3 and 3.7% in Q4.

Real GDP growth seen at 6.1% in FY 2019/20, Q2 at 5.3%, Q3 at 6.6% and Q4 at 7.2%.

Real GDP growth seen at 7.0% in 2020/21.

Assuming global crude oil prices increase to $73/barrel, inflation could be higher by 30 bps, growth weaker by 20 bps.

Headline inflation projected to remain below 4% target in 2019/20, early months of 2020/21.

Real GDP growth expected to recover in H2 2019/20 due to favorable base effect, transmission of past policy cuts.

The Rupee showed little reaction to the rate cut decision, keeping its bid tone intact vs. the US dollar. USD/INR trades around 70.85 region, having hit three-day lows of 70.76 in the opening trades.