Economy

At first MPC meet, Shaktikanta Das votes in favour of rate cut

At first MPC meet, Shaktikanta Das votes in favour of rate cut”

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.

The RBI's monetary policy xommittee (MPC) began its three-day meet on Tuesday to decide on key rates amid expectations that it may change its policy stance to "neutral" from "calibrated tightening" on low inflation footprint, even as a rate cut was ruled out by many experts.

The cut in borrowing costs in Asia's third-biggest economy comes as the economy stutters and other central banks, most notably the Federal Reserve, have sounded increasingly cautious about the global outlook.

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.

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

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. The 'repo rate is a key interest rate at which the Central Bank lends short-term funds to commercial banks.

This is the first policy of new RBI Governor Shaktikanta Das, who also heads the MPC. In its budget on February 1, the government doled out cash to farmers and tax cuts to middle-class families, at the cost of a wider fiscal deficit and larger borrowing.

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.

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.

"We expect the monetary policy committee to vote 5-1 to keep the repo rate unchanged", said Sonal Varma, chief India economist at Nomura Holdings Inc.in Singapore.

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.

In its December policy, the RBI had projected a GDP growth rate of 7.4% for 2018-19 (7.2-7.3% in the second half and 7.5% for the first half of 2019-20) with risks somewhat to the downside. "Both recent history and forward guidance make a compelling case for the rate cut".

The National Stock Exchange of India (NSE) Nifty was up 0.04% at 11068.05 while the ten-year benchmark government bond yield fell to 7.51% from Wednesday's close of 7.56%.



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