RBI Policy: MPC Cuts Repo Rate by 25 Basis Points to 6.25%

RBI Policy MPC Cuts Benchmark Rate RBI Governor Emphasises Growth

The monetary policy committee said the rate cut is in consonance of achieving the medium term objective of maintaining inflation at the 4 per cent level while supporting growth.

Das, in his maiden monetary policy review, has moved away from the usual practice of announcement 2:30 pm. In its Febriary 5 report, news agency Reuters had said a softer stance would bode well for Prime Minister Narendra Modi's government, which wants to boost lending and lift growth as it faces elections by May.

The BJP led national alliance is already in poll mode and announced several sops at its interim budget on February 1.

The Reserve Bank of India (RBI) in its first policy meet under the new RBI chief Shaktikanta Das, made a decision to cut the repo rate by 25 basis points (bps) or 0.25 per cent to 6.25 per cent on Thursday.

The cut in borrowing costs in Asia's third-biggest economy comes as the economy stutters and other central banks, most notably the Federal Reserve, have sounded increasingly cautious about the global outlook. The Federal Reserve has changed direction, and now many analysts expect no USA rate hikes this year, after four in 2018.

The RBI's monetary policy xommittee (MPC) began its three-day meet on Tuesday to decide on key rates amid expectations that it may change its policy stance to "neutral" from "calibrated tightening" on low inflation footprint, even as a rate cut was ruled out by many experts.

Analysts say India needs to regularly record growth of at least eight percent to generate employment for the millions entering the workforce each year. The pace has steadily dropped since June's 4.92 percent.

India's retail inflation fell to a 18-month low of 2.19 per cent in December.

The government was believed to be unhappy with the RBI over a number of issues, including its apparent reluctance to cut rates to stimulate the economy.

Economic growth fell to a worse-than-expected 7.1 percent in the July-September quarter from 8.2 percent in the previous one, due to slower consumer spending and farm growth.

Dr Ravindra H. Dholakia, Dr Pami Dua, Dr Michael Debabrata Patra and Shri Shaktikanta Das voted in favour of rate cut decision while Dr Chetan Ghate and Dr Viral V. Acharya voted to keep the policy rate unchanged. This was the first MPC meeting chaired by new RBI Governor Shaktikanta Das.

"To see this as a capitulation of the government's demands is profoundly misguided", said Abheek Barua, chief economist of HDFC Bank. "Going by the guidance, there is room for a further rate cut".

The Indian rupee weakened to 71.69 to the dollar immediately after the announced but strengthened soon after to 71.42.

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