Published: Thu, February 07, 2019
Finance | By Loren Pratt

RBI Seen Changing Policy Stance In Shaktikanta Das' First Review Today

RBI Seen Changing Policy Stance In Shaktikanta Das' First Review Today

The Reserve Bank of India (RBI) on Thursday unexpectedly lowered interest rates and, as anticipated, changed its policy stance to "neutral" to boost a slowing economy after a sharp slide in the inflation rate.

"On the basis of an assessment of the current and evolving macroeconomic situation at its meeting today, the Monetary Policy Committee (MPC) made a decision to reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 6.5 per cent to 6.25 per cent with immediate effect", said the policy statement.

After the cut, the repo rate stood at 6.25 per cent.

Interestingly, while the decision to change the monetary policy stance was unanimous, on the repo rate cut, it was a 4-2 decision.

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. 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.

Das will have an opportunity to lay out his monetary policy outlook at a press briefing scheduled for 12 Mumbai, 15 minutes after the rate announcement.

India's new RBI governor Shaktikanta Das "has delivered what the Modi government was hoping for", said Mark Williams, chief Asia economist of Capital Economics, in a note.

It also wants to focus mainly on headline figures, not just the core part of inflation.

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.

The RBI raised rates twice previous year 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. The rate cut should help banks and other lenders bring down those rates.

In its December policy statement, the RBI forecast headline inflation at 3.8 percent to 4.2 percent in the six months starting April, not very far from its medium-term target of 4 percent.

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%.

The short-term outlook for food inflation appears particularly benign, despite adverse base effects. The 25 bps rate cut has come after a period of one-and-a-half years (the last one was in August 2017).

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

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