"On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) at its meeting today chose to reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 5.75 per cent from 6 per cent with immediate effect", the RBI said after the second bi-monthly meeting of the MPC for 2019-20.
State Bank of India chairman Rajnish Kumar said the decision to lower the Basel III leverage ratio would augment the lendable resources of the banks.
"A 25 bps repo rate cut along with the change in policy stance to accommodative may mean that over a period of two months we might get a total of 50 bps cut including the current one", said B Prasanna, group head for global markets at ICICI Bank.
Asia's third largest economy grew at a much slower-than-expected 5.8% annually in the January-March quarter, according to official data released on Friday. Repo rate is the rate at which the apex bank lends short-term money to commercial banks. The reverse repo rate was reduced to 5.50 percent.
Markets reacted to the rate cut and change in stance as the 10-year benchmark bond yield fell to 6.89% from 7% before the policy announcement, while the rupee strengthened to 69.28 per dollar from 69.36 earlier.
The Supreme Court's April 2 order raised questions over the fate of about eight power projects including the 3,600 MW KSK Mahanadi Power Co Ltd, 1,920 MW Lanco Amarkantak Power Ltd, 600 MW Avantha Power, 1,350 MW Rattan India Power Ltd, 550 MW RKM Powergen and 700 MW Bharat Utkal.
A cut in rates was on expected lines.
While marginally increasing its inflation projection to 3-3.1 per cent for the first half of the fiscal year 2019-20, which is within the comfort range of 2-6 per cent set by the government, RBI cut the GDP growth targets sharply to 7 per cent for FY20 on weak global scenario and dip in private consumption.
The RBI under its new Governor Shaktikanta Das has cut its key rates by a cumulative 0.50 percent since he took charge.
"Our expectation is that as we go forward there will be higher transmission and then there will be faster transmission also", Das said.