Shaktikanta Das debuts as RBI guv with surprise rate cut

Shaktikanta Das debuts as RBI guv with surprise rate cut

Shaktikanta Das debuts as RBI guv with surprise rate cut

RBI forecasts GDP growth for FY20 at 7.4 %, cuts repo rates by 25 basis points from 6.5% to 6.25%: The Reserve Bank of India (RBI) on Thursday cut repo rate by 25 basis points from 6.5 per cent to 6.25 per cent.

The six-member monetary policy committee voted 4:2 in favour of the rate cut, while the decision to change policy stance was unanimous.

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

Commenting on the RBI rate cut, Ankur Dhawan- Chief Investment Officer-PropTiger.com, said "Industry was expecting a bigger rate cut than announced".

The cut is welcome news for Prime Minister Narendra Modi's government, which wants to boost lending and lift growth as it faces elections by May.

The BJP led national alliance is already in poll mode and announced several sops at its interim budget on February 1. The inflation rate is estimated at 3.2-3.4% in the first half of the year 2019-20 and 3.9 % in the third quarter of 2019-20, said RBI Governor Shaktikanta Das.

The central bank pegged the growth in Gross Domestic Product at 7.4% in 2019-'20. Repo rate is the rate at which RBI lends to commercial banks.


Some economists said Das, a seasoned bureaucrat, is likely to promote growth and aid the fragile financial sector, as inflation is comfortable at present, in December dropping to an 18-month low of 2.19 percent.

Deputy Governor Viral Acharya and another MPC member, Chetan Ghate, voted for status quo in interest rates, while Das and three others voted for a cut in interest rates.

The rate cut continues a trend in which some major central banks, anxious about slowing global growth and helped by cooling inflation, have moved firmly away from last year's tightening moves or tones.

"In the 12-month horizon, if we see that inflation remains at 3.9 or maximum of 4 percent or below, then I think there is a room to act", Das told reporters after Thursday's decision.

Nomura is of the view that RBI's new growth forecasts are too optimistic. Earlier, when Urjit Patel took charge as the RBI Governor, he shifted from the usual practice of announcement at 11 am and presented the fourth bi-monthly (his maiden) monetary policy review at 2:30 pm after the MPC meeting. "Both recent history and forward guidance make a compelling case for the rate cut".

Indian shares pared gains while ten-year bond yields slid five basis points after the surprise rate cut.

The rupee weakened to 71.69 to the dollar immediately after the decision, but it later strengthened to 71.42.

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