07:19 GMT26 February 2020
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    New Delhi, (Sputnik): Indian Finance Minister Nirmala Sitharaman in her budget on 1 February lowered income tax in order to boost demand. And by not increasing the repo rate, despite inflationary pressure, India's central bank, the Reserve Bank of India is also attempting to encourage economic growth.  

    The Reserve Bank of India (RBI) announced its sixth bi-monthly monetary policy statement for 2019-20 on Thursday 6 February, in which, as was widely expected, the repo rate was left unchanged at 5.15 per cent.

    Repo rate is the rate of interest at which the RBI lends money to commercial banks. The reverse repo rate is the rate at which the RBI borrows money from commercial banks, which also has been kept unchanged at 4.90 percent.

    In its policy statement, the monetary policy committee of RBI said, “GDP growth for 2020-21 is projected at 6.0 per cent,” adding that “rationalisation of personal income tax rates in the Union Budget 2020-21 should support domestic demand along with measures to boost rural and infrastructure spending”.

    On inflation, the monetary policy committee said: “Food inflation is likely to soften from the high levels of December and the decline is expected to become more pronounced during Jan-March 2020 as onion prices fall rapidly in response to arrivals harvests.”

    Experts see RBI's rate decision complimentary to the need to revive growth in the Indian economy. “RBI has kept the repo rate unchanged at 5.15%, while continuing the basic accommodative stance of the policy in response to the objective of revival of growth. With the budget proposals, the RBI has done a balancing act of reconciling the requirement of growth with stability,” said Joseph Thomas, head of research at Emkay Wealth Management.

    Amid a widespread slowdown in the Indian economy, the government lowered its national income growth forecast for the current financial year (April 2019-March 2020) to 5 percent against its earlier projection of 7 percent.  

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