Das says RBI won’t prejudge the liquidity situation: Policy Highlights

RBI interest rate,repo rate,GDP

India's central bank on Thursday unexpectedly lowered interest rates and, as anticipated, shifted its stance to "neutral" from "calibrated tightening" to boost a slowing economy after a sharp fall in the inflation rate.

With inflation concerns easing, the Reserve Bank of India on Thursday cut the repo rate by 25 basis points to 6.25 per cent and changed the monetary policy stance from calibrated tightening to neutral. The Federal Reserve has changed direction, and now many analysts expect no US rate hikes this year, after four in 2018.

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 ruling Bharatiya Janata Party (BJP) is already in an election mode.

"Turning to the growth outlook, GDP growth for 2018-19 in the December policy was projected at 7.4 per cent (7.2-7.3 per cent in H2) and at 7.5 per cent for H1:2019-20, with risks somewhat to the downside", the RBI said in a statement.

Usually when RBI cuts repo rate, banks typically pass on the benefit to the customers.

Deviating from the practice of releasing the resolution of MPC in afternoon, the Reserve Bank of India (RBI) uploaded the policy statement it on its website at 11.45 am on February 7.

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

India's retail inflation declined from 3.4 per cent in October 2018 to 2.2 per cent in December, well below the bank's target of four 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 central bank's commentary on inflation and growth support a dovish outlook for the policy", said Shashank Mendiratta, an economist with IBM in New Delhi, adding "The macro backdrop as such supports the RBI's stance".

This was the first policy of RBI Governor Shaktikanta Das, who heads the MPC.

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.

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, vehicle loan and corporate borrowers.

The NSE index was up 0.04 percent at 11068.05 while the 10-year benchmark government bond yield fell to 7.51 percent from Wednesday's close of 7.56 percent.

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