What did the RBI change in its bimonthly credit policy review in June 2019?
It reduced the repo rate to 5.75% from 6%- that is by 25 basis points.
Why?
1. To spur economic activity, which decelerated sharply in the January-March quarter of 2019, the Reserve Bank India’s Monetary Policy Committee (MPC) unanimously decided to cut the policy repo rate by 25 basis points and change the monetary policy stance from ‘neutral’ to ‘accommodative’. This is the third time consecutively that the six-member MPC has decided on a 25-basis points rate cut.
2. The rate cut also comes in the backdrop of benign retail inflation.
This move by the RBI will ensure that adequate liquidity is available in the system for all productive purposes. An accommodative stance basically means that rate increase is off the table.
What is an accommodative monetary policy?
Accommodative monetary policy occurs when a central bank (RBI) attempts to expand the overall money supply to boost the economy when growth is slowing (as measured by GDP). The policy is implemented to allow the money supply to rise in line with national income and the demand for money. Accommodative monetary policy is also known as "easy monetary policy" or "loose credit policy."
What is output gap and what is it showing?
The country saw further widening of the output gap which is: the difference between the actual output of an economy and its potential output compared to the April 2019 policy. It means that country is producing far less than what it could.
How are investment rates and inflation behaving?
A sharp slowdown in investment activity along with a continuing moderation in private consumption growth is a matter of concern.
The headline inflation trajectory remains subdued even after taking into account the expected transmission of the past two policy rate cuts.
What do the above trends prompt?
There is scope for the MPC to accommodate growth concerns by supporting efforts to boost demand, and in particular, reinvigorate private investment activity, while remaining consistent with its flexible inflation targeting mandate.
What factors could create inflationary pressures going forward?
The MPC said risks around inflation trajectory are from
What Are Current Policy Rates (Repo) And Other Key Variables?
| Date | Repo Rate | Reverse Repo Rate | CRR | SLR |
| June 2019 | 5.75% | 5.5% | 4% | 19.25% |