The monetary policy committee of the Reserve Bank of India (RBI) for the second consecutive time cut the benchmark lending rate by 25 basis points to 6% on Thursday. It cited concerns overgrowth as it lowered the GDP forecast to 7.2% for the current financial year from 7.4% projected in the February policy.
The central bank said the output gap remained negative and the domestic economy was facing headwinds, especially on the global front. “The need is to strengthen domestic growth impulses by spurring private investment that has remained sluggish,” it said.
Four members of the committee voted for a rate cut, while RBI Deputy Governor Viral Acharya and Chetan Ghate voted for status quo. The committee maintained the neutral policy stance, which means interest rates can move in either direction. “With the inflation outlook remaining benign, the RBI will address the challenges to the sustained growth of the economy while ensuring price stability on an enduring basis,” Governor Shaktikanta Das said.
The RBI lowered its inflation forecast to 2.9%-3% from 3.2%-3.4% for the first half of the current financial year and 3.5-3.8% in the second half, assuming a normal monsoon.
“Domestic GDP growth is also estimated to slow in 2018-19, with high-frequency indicators suggesting slackening of urban and rural demand as well as an investment activity,” he said.