Never miss a great news story!
Get instant notifications from Economic Times
AllowNot now


You can switch off notifications anytime using browser settings.
11,691.5019.35
Stock Analysis, IPO, Mutual Funds, Bonds & More

RBI slashes repo rate by 25 bps, cuts FY20 GDP growth estimate to 7.2%

This was a back-to-back rate cut by the new governor-headed committee.

, ETMarkets.com|
Updated: Apr 04, 2019, 05.28 PM IST
0Comments
RBI repo rate cut explained: Will a second relief help consumers?
RBI repo rate cut explained: Will a second relief help consumers?
NEW DELHI: RBI's monetary policy committee (MPC), led by Governor Shaktikanta Das, on Thursday announced a 25 basis points cut in the short-term lending rate, also known as repo or repurchase rate, in its first bi-monthly rate review of financial year 2019-20. The repo rate now stands at 6 per cent.

This was the second back-to-back rate cut by the six-member MPC ever since Das was appointed Governor. The move made India the only country in Asia to have cut interest rates twice in three months.

“The outlook for fuel prices remain hazy. Fiscal situation at the government level needs a close monitoring. We need to make private investment a priority,” Das said in a post-policy media interaction.

The MPC kept the policy stance ‘neutral.’

MPC voted 4:2 in favour of the rate cut. Pami Dua, Ravindra Dholakia, Michael Debabrata Patra and Shaktikanta Das voted in favour of the decision to reduce the policy repo rate. Chetan Ghate and Viral Acharya voted to keep the policy rate unchanged.

“GDP in the first half of FY20 may stay in 6.8-7.1 per cent range while the same may jump to 7.3-7.4 per cent in the second half,” the RBI said in a press release.

HIGHLIGHTS
  • GDP growth for FY20 cut to 7.2 per cent from 7.4%
  • CPI inflation target revised downward to 2.4% from 3%
  • RBI took note of headwinds to Indian economy
  • MPC votes 4-2 in favour of 25 bps rate cut
  • To come out with norms for rate cut transmission
  • MPC votes 5-1 to keep stance unchanged at 'neutral'
  • MPC's Ghate, Viral Acharya voted for status quo
  • Low Jan-Feb food inflation to have bearing on near-term CPI
  • To form task force on secondary market for corp loans, Das said
  • Fiscal situation at govt level needs careful monitoring: Guv


Consumer price inflation was seen at 2.9-3 per cent in the first six months of FY20, below the RBI’s comfort zone of 4 per cent. The central bank sees inflation rising to 3.5-3.8 per cent in the second half, with risks evenly balanced.

The rate cut was in line with analysts projections in an ET Now survey, where 90 per cent of the respondents hoped for a 25-basis point rate cut, while the rest has forecast status quo. India's retail inflation for January-February averaged at 2.3 per cent, lower than RBI's inflation forecast of 2.8 per cent for March quarter.

Domestic equity benchmark was benign in its reaction to the RBI move. BSE Sensex traded 50 points down at 38,820. The rupee extended its weakness and was down 43 paise at 68.87. The 10-year bond yield stood at 7.3, up 0.4 per cent.
Analysts said the transmission of the previous rate cut in February did not materialise as liquidity remained tight. Despite the central bank’s continued open market operations and the dollar-rupee swap, systemic liquidity as of March-end was in deficit at Rs 40,000 crore.

The tightness in liquidity was visible in high credit-deposit ratios and elevated corporate bond spreads.

“The RBI has adopted a very sensible and pragmatic approach. It took cognizance of the likelihood or potential for inflationary pressures emerging from food prices and fuel prices , and also fiscal pressures from the large government borrowing program,” said Joseph Thomas, Head Research- Emkay Wealth Management.

RBI’s intent of supporting economic growth under Governor Shaktikanta Das, with inflation under control, is evident, said Amar Ambani, President & Head of Research at YES Securities. Ahead of RBI policy outcome, Ambani however, felt RBI should focus solely on addressing the liquidity situation in the economy.

MPC voted 5-1 to keep stance unchanged at 'neutral'. Chetan Ghate, Pami Dua, Michael Debabrata Patra, Viral Acharya and Shri Shaktikanta Das voted in favour of the decision to maintain the neutral stance of monetary policy. Ravindra Dholakia voted to change the stance from neutral to accommodative.

The minutes of the MPC’s meeting will be published by April 18. The next meeting is scheduled from June 3 to 6.
0Comments

Also Read

SBI links home loan interest rates to repo rate: Will borrowers gain?

SBI to link home loans to repo rate from July

RBI must ensure rupee export credit at repo rate: EEPC India

RBI's repo rate cut to boost home sales

RBI may cut repo rate by 25 bps: Analysts

Comments
Add Your Comments
Commenting feature is disabled in your country/region.
Download The Economic Times Business News App for Live Elections News & Results, Latest News in Business, Share Market & More.

Other useful Links


Follow us on


Download et app


Copyright © 2019 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service