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

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"While this can also result in reduced borrowing rates and incremental credit supply for NBFCs, however, this will depend on banks' willingness to do so". Of the six-member Monetary Policy Committee (MPC), four, including Das and RBI ED Michael Patra, voted in favour while deputy governor Viral Acharya and external member Chetan Ghate voted against cutting rates. The MPC has also chose to change the monetary policy stance from "calibrated tightening" to "neutral".

"The central bank's commentary on inflation and growth support a dovish outlook for the policy", said Shashank Mendiratta, an economist with IBM in New Delhi, adding "The macro backdrop as such supports the RBI's stance". A clarification from the central bank is awaited.

If inflation remains muted, Das hinted there is more room to cut rates, sounding a markedly more dovish tone from the central bank. He also indicated that an interim dividend to the government was forthcoming.

Emboldened by a slowdown in inflation, the MPC under the new governor showed more concern about economic growth risks, paving the way for more rate cuts.

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The reverse repo rate stands adjusted to 6 per cent, while the marginal standing facility (MSF) rate and the Bank Rate to 6.5 per cent. It expects RBI to deliver another 25 bps rate cut in April.

"Headline inflation is projected to remain soft in the near term reflecting the current low level of inflation and the benign food inflation outlook", the statement said, but cautioned that beyond the near term, some uncertainties warrant careful monitoring such as volatile vegetable prices, crude oil prices and trade tensions.

Shares of automobile companies were trading higher by up to 5 per cent on the National Stock Exchange (NSE), after the Monetary Policy Committee (MPC) of Reserve Bank of India (RBI) in its sixth bi-monthly monetary policy meeting on Thursday cut the repo rate by 25 bps to 6.25 per cent from 6.50 per cent, earlier. One basis point is a hundredth of a percentage point. The next meeting of the committee is scheduled from April 2 to April 4. Retail inflation, measured by y-o- y change in the CPI, declined from 3.4 per cent in October 2018 to 2.2 per cent in December, the lowest print in the last 18 months.

"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", it said.

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