RBI cuts repo rate by 25bps

The Reserve Bank of India (RBI) reduced policy repo rates under LAF by 25 basis points on Thursday. The Monetary Policy Committee (MPC) also changed its policy stance to neutral.

Newly-appointed RBI Governor Shaktikanta Das in his first bi-monthly policy meet cut repo rate under the liquidity adjustment facility (LAF) rate down by 25 basis points to 6.25 per cent from from 6.5 per cent. The reverse repo rate is now at 6.0 per cent, the marginal standing facility (MSF) rate and the Bank Rate stands at 6.5 per cent.

Policy Stance:

The members of MPC voted to change the monetary policy to neutral from the earlier stance of calibrated tightening. This is in line with CPI inflation achieving RBI's medium-term target of 4 per cent within a band of +/- 2 per cent.

GDP growth:

MPC projected GDP growth for FY20 at 7.4 per cent, i.e, in the range of 7.2 to 7.4 per cent in H1 and 7.5 per cent in Q3, with risks evenly balanced. Governor noted that global growth is slowing down, domestic credit flow is muted in absence of investment demand.

Inflation:

Assuming a normal monsoon in 2019, MPC revised CPI inflation downwards to 2.8 per cent in Q4, FY2018-19, and 3.2 to 3.4 per cent in H1, 2019-20 and 3.9 per cent in Q3, 2019-20, with risks broadly balanced around the central trajectory. Headline inflation is expected to remain soft in the near-term, reflecting benign food inflation outlook. However, the Governor commented that macroeconomic indicators appear stressed.

On Thursday, during the RBI's policy meet, the market seemed to analysing the fine prints of the policy statement. At 12:40 hours, the benchmark index BSE Sensex was at 36,995.72, up marginally by 0.06 per cent, the Nifty50 was at 11,068.80, up by 0.06 per cent, while the banking index Nifty Bank was at 27,426.15, up by 0.09 per cent.