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

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

India's rate cut continues a trend in which some major central banks, anxious about slowing global growth and helped by low inflation, have moved firmly away from the tightening moves made a year ago.

Owing to benign inflation numbers, the central bank changed its policy stance to neutral from calibrated tightening, adopted in October policy meet previous year under the then RBI Governor Urjit Patel.

When asked if there exists more room for further rate cuts, given the estimate of inflation trending at 3.9 per cent in the third quarter of the next fiscal, Das seemed to reply in the affirmative.

In December, it had introduced a new method for fixing floating loan charges-a move that will likely force banks to change home loan rates according to the way the RBI's repo rate or government bond yields move.

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 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.

Some politicians and stock market analysts said the rate cut decision may not improve Modi's chances in the election as the banks could take time to pass on rate cut benefits.

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The government was believed to be unhappy with the RBI over a number of issues, including its apparent reluctance to cut rates to stimulate the economy.

It could sow the seeds for inflation - especially when added to the fiscal stimulus in the budget - in the second half of the next financial year, which begins on April 1, he warned.

"Investment activity is recovering but supported mainly by public spending on infrastructure", news agency Reuters reported quoting the MPC.

GDP growth for 2019-20 is projected at 7.4% - in the range of 7.2-7.4% in H1, and 7.5% in Q3 - with risks evenly balanced. There is a need to strengthen private investment activity and buttress private consumption.

The committee though flagged external headwinds including trade tensions, and crude oil prices, which though appear well-behaved now.

"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.

Replying to a question, deputy governor Viral Acharya said it will not be fair to assess the today's rate cut as one delivered in urgency.

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