Saturday, 23 February, 2019

Home and auto loans to be cheaper as RBI cuts rates

RBI Policy MPC Cuts Benchmark Rate RBI Governor Emphasises Growth RBI Policy: MPC Cuts Repo Rate by 25 Basis Points to 6.25%
Nellie Chapman | 07 February, 2019, 12:56

The MPC also chose to change the monetary policy stance from calibrated tightening to neutral.

The six-member Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) chose to reduce the key policy rate or the repo rate by 25 bps to 6.25% in the last bimonthly policy review of 2018-19 while changing the policy stance to "neutral" from "calibrated tightening". Most polled respondents expected the central bank to only change the stance, to neutral.

In its previous monetary policy review in December 2018, the RBI had kept interest rates unchanged but held out a promise to cut them if the upside risks to the inflation do not materialise. One, there will likely be a series of rate cuts from this point and the cumulative impact will considerably put pressure on banks to pass on the benefit to the end-consumer.

The ruling Bharatiya Janata Party is already in election mode.

GDP: RBI projects GDP to expand at 7.4 per cent in 2019-20 - 7.2-7.4 per cent in H1, and 7.5 per cent in Q3 - with the risks evenly balanced. The repo rate at which banks borrow from the central bank now stands at 6.25 per cent from 6.5 per cent. In its budget on February 1, the government doled out cash to farmers and tax cuts to middle-class families, at the cost of a wider fiscal deficit and larger borrowing.

India's last rate cut, to 6.00 percent, was in August 2017.

The RBI raised rates twice a year ago over concerns about rising prices but with inflation now at an 18-month low the bank said it was time to opt for a reduction.

For April-September, the MPC lowered its projection on headline inflation to 3.2-3.4 percent from the 3.8-4.2 percent seen in December.

The Narendra Modi government at the Centre had revised the GDP growth estimates for the financial year 2017-18 to 7.2% from its earlier estimate of 6.7%.

Going ahead, the RBI said, the short-term outlook for food inflation appears particularly benign, despite adverse base effects. Today's statement from the central bank will mark the first under Governor Shaktikanta Das, who took office almost a week after the last policy meet on December 5 by his predecessor Urjit Patel.

Patel's exit prompted some to fret the RBI's independence was under threat, but some economists argued that Thursday's decision should not be read as a surrender to pressure.

The six-member MPC, headed by Reserve Bank of India Governor Shaktikanta Das, began its meeting on Tuesday and announced its decision on Thursday.

The National Stock Exchange of India (NSE) Nifty was up 0.04% at 11068.05 while the ten-year benchmark government bond yield fell to 7.51% from Wednesday's close of 7.56%.