RBI Policy: MPC cuts repo rate by 25 basis points to 6.25%

RBI Policy MPC Cuts Benchmark Rate RBI Governor Emphasises Growth

RBI Policy MPC Cuts Benchmark Rate RBI Governor Emphasises Growth

The repo rate at which banks borrow from the central bank now stands at 6.25 per cent from 6.5 per cent.

After months of maintaining status quo over the key lending rate, the RBI today finally announced a Repo Rate Cut by 0.25%.

When asked about transmission and banks' reluctance to pass on the rate decreases to borrowers, Das said it is up to the individual banks to take a call on their lending, underlining that the RBI only gives a directional move.

It marked the first interest rate decision under new bank chief Shaktikanta Das, an ally of Modi who was appointed in December after his predecessor, Urjit Patel, quit following a public spat with the administration over alleged government interference.

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 RBI also eased bank lending restrictions for non-banking finance companies and raised the limit on "collateral free" farm loans in an attempt to boost lending to almost 120 million rural households.

RBI Governor Shaktikanta Das said, "we are constantly & continuously monitoring the liquidity situation and based on the requirement we will ensure that there is no liquidity scarcity".

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 need is to strengthen private investment activity and buttress private consumption".

Listing the factors that influenced the growth outlook, the central bank said, "First, aggregate bank credit and overall financial flows to the commercial sector continue to be strong, but are yet to be broad-based".

"In particular, trade tensions and associated uncertainties appear to be moderating global growth", it said. "Secondly, in spite of soft crude oil prices and the lagged impact of the recent depreciation of the Indian rupee on net exports, slowing global demand could pose headwinds".

The former finance secretary-turned governor explained that the price stability is defined as keeping the headline inflation number at the mandated 4 per cent in the medium-term and asserted that the Monetary Policy Committee has not done anything beyond the provisions of the RBI Act.

Amid expectations that the panel will soften its view on inflation risks in the economy, the committee cut repo rate by 25 basis points to 6.25 percent. "Growth in rural wages moderated in October", RBI said.

All said, it was a refreshingly straightforward and pragmatic monetary policy review bringing in perhaps a new era of more elaborate communication from the central banks, now in India just after Fed also started press conference at every FOMC meet.

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