Published: Fri, February 08, 2019
Markets | By Erika Turner

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

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

The rate cut is in line with expectations as retail inflation grew by 2.2% in December its slowest in the last 18 months. The RBI has also changed its stance to "neutral" from existing "calibrated tightening".

This was the first meeting of the monetary policy committee (MPC) under Shaktikanta Das who took over as the RBI governor in December after the sudden exit of Urjit Patel over differences with the Modi government.

Mark Williams, Chief Asia Economist of Capital Economics in London, said there was a growing perception that RBI had allowed its focus on controlling inflation to slip, and therefore higher inflation and higher interest rates were likely over the long term.

Banks have also been given greater operational freedom to offer interest rates to bulk deposits, raising the definition of "bulk deposits" to Rs 2 crore from Rs 1 crore now.

The repo rate is the rate at which the Reserve Bank lends short-term money to the banks, while the reserve repo rate is the rate at which the central bank borrows money from commercial banks.

"Continuing deflation in food items, a sharp fall in fuel inflation and some edging down of inflation excluding food and fuel contributed to the decline in headline inflation", the RBI said.

Gopal Krishna Agarwal, the BJP's spokesman on economic affairs, said the government had been asking the RBI to cut rates for some time.

Earth's Magnetic North Pole May Have Just Officially Shifted
Its speed jumped from about 9 miles per year (15 kilometers per year) to 34 miles per year (55 kilometers per year) since 2000. Since 1831 when it was first measured in the Canadian Arctic it has moved about 1400 miles (2300 km) towards Siberia.

With inflation largely under control, the big concern for the government is growth, particularly in an election year.

In the same breath, GDP growth for FY20 is projected at 7.4 per cent - in the range of 7.2-7.4 per cent in H1, and 7.5 per cent in Q3 - with risks evenly balanced.

"Investment activity is recovering but supported mainly by public spending on infrastructure", the MPC said in a statement, adding there is a need to strengthen private investment and buttress private consumption.

"Finally, several proposals in the union budget for 2019-20 are likely to boost aggregate demand by raising disposable incomes, but the full effect of some of the measures is likely to materialise over a period of time", the committee said in the statement.

"In particular, trade tensions and associated uncertainties appear to be moderating global growth", it said.

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.

From interviews to new reports, catch ThePrint live in action on our YouTube channel.

Like this: