RBI: Repo rate reduced by 25 basis points


The inflation rate is estimated at 3.2-3.4% in the first half of the year 2019-20 and 3.9 % in the third quarter of 2019-20, said RBI Governor Shaktikanta Das. The surprise move also came after calls from a top adviser of Prime Minister Narendra Modi for rate cuts to fire up the economy.

"Taking into consideration these developments and assuming a normal monsoon in 2019, the path of CPI inflation is revised downwards to 2.8% in Q4:2018-19, 3.2-3.4% in H1:2019-20 and 3.9% in Q3:2019-20, with risks broadly balanced around the central trajectory", it said.

Sonal Varma, chief India economist at Nomura Holdings Inc.in Singapore, said the RBI's autonomy wasn't at issue this time around.

Developed economies too are altering stance, with the Reserve Bank of Australia governor this week shifting to neutral.

With the US Federal Reserve signaling a pause in its rate-hike cycle, emerging markets from India to Indonesia are getting a breather as global risks mount.

This was the first policy of RBI Governor Shaktikanta Das, who heads the MPC.

Inflation slowed to an 18-month low of 2.2 percent in December, remaining well below the RBI's medium-term target, and not expected to breach that goal in the next 10 months, according to the central bank's latest forecast.

Four of the six MPC members voted to cut the rates, while all backed the change in stance. The central bank had maintained the status quo in the last two Monetary Policy Committee meetings.

Analysts say India needs to regularly record growth of at least eight percent to generate employment for the millions entering the workforce each year. "But there should be consistency in views over a period of time".

The Reserve Bank of India (RBI) said the benchmark repo rate - the level at which it lends to commercial banks - would be reduced by 25 basis points to 6.25 per cent. Last week it unveiled an expansionary budget, which included $13 billion of consumer stimulus ahead of an election.

For April-September, the MPC lowered its projection on headline inflation to 3.2-3.4 percent from the 3.8-4.2 percent seen in December. That scenario may change now because the new governor has his priorities on growth very clear and may not tolerate the idea of banks ignoring the RBI cues. As headline inflation is way below target, MPC could have given 50 bps relaxation to industry.

The central bank committee also chose to stick to the Central Statistical Organization's growth estimate of 7.4% for 2019-20 and a range of 7.2%-7.4% for the first half of the next fiscal year. But core inflation - which strips out volatile food and fuel prices - has hovered around 6 percent due to elevated education and medical costs.