RBI Slashes Repo Rate by 25 Basis Points, Changes Stance to 'Neutral'

RBI Policy MPC Cuts Benchmark Rate RBI Governor Emphasises Growth

RBI Policy MPC Cuts Benchmark Rate RBI Governor Emphasises Growth

The six-member Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) made a decision 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".

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. The move could spur banks and non-banking finance companies into reducing their lending rates for consumer and home loans, resulting in lower EMIs for borrowers.

The government is already in an election mode.

It has projected GDP growth for 2019-20 is projected at 7.4 per cent - in the range of 7.2-7.4 per cent in the first half, and 7.5 per cent in the third quarter.

India's central bank cut interest rates on Thursday, giving a surprise boost to Prime Minister Narendra Modi ahead of general elections due this year. In its budget on Feb 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. Real interest rates in India are among the highest in Asia, and calls for the first cut in the policy rate since August 2017 have been growing. While RBI's mandate is price stability (targeting inflation), the RBI Act also says that it needs to do so "keeping in mind the objective of growth", Das said then to make his point. The MPC reiterated its commitment to achieving the medium-term target for headline inflation of 4 percent on a durable basis. This was the first MPC meeting chaired by new RBI Governor Shaktikanta Das.

The central bank also projected an economic growth rate of 7.4% for the next fiscal year, up from 7.2% estimated for the current fiscal year by the Central Statistics Office (CSO).

The short-term outlook for food inflation appears particularly benign, despite adverse base effects.

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.

RBI Governor Shaktikanta Das cut the interest rate by 0.25 percent to 6.25 percent, a move that will lead to reduction of lending rate by banks leading to lower EMI for housing, auto loan and corporate borrowers.

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

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%.

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