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RBI policy highlights: RBI cuts repo rate by 25 basis points; reduces FY20 GDP growth forecast to 7.2%

BusinessToday.In     April 4, 2019

In its first bi-monthly meeting of this financial year, the RBI on Thursday lowered the GDP growth forecast for the current fiscal to 7.2 per cent from the earlier estimate of 7.4 per cent amid probability of El Nino effects on monsoon rains and uncertain global economic outlook. Earlier, the RBI projected the GDP growth for 2019-20 at 7.4 per cent in first half of the fiscal. The central bank also reduced the repo rate by 25 basis points to 6 per cent from earlier 6.25 per cent. However, it kept monetary policy stance at 'neutral'. In the second policy review under Governor Shaktikanta Das, the six-member Monetary Policy Committee voted 4:2 in favour of the rate cut. Last time repo rate stood at 6 per cent was in April 2018. "The rate cut is in consonance of achieving the medium term objective of maintaining inflation at the 4 per cent level while supporting growth," RBI said in a statement.

The MPC decision on repo rate assumes special significance considering the 2019 Lok Sabha Elections in the country, which are beginning on April 11. On February 7, the RBI's Monetary Policy Committee reduced the repo rate reduced by 25 basis points to 6.25 from 6.5 per cent. The further reduction in the repo rate will help people pay lower monthly instalments for home and other loans.

RBI repo rate cut: How much will your home loan EMIs reduce?

Catch all the latest updates on BusinessToday.In live blog.

1.30pm: Governor Shaktikanta Das before his press conference on RBI monetary on Thursday.


1.19pm: "The GDP growth for 2019-20 in the February policy was 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. Since then, there are some signs of domestic investment activity weakening as reflected in a slowdown in production and imports of capital goods. The moderation of growth in the global economy might impact India's exports. On the positive side, however, higher financial flows to the commercial sector augur well for economic activity," says the RBI.

1.15pm: The RBI Thursday lowered the GDP growth forecast for the current fiscal to 7.2 per cent from the earlier estimate of 7.4 per cent amid probability of El Nino effects on monsoon rains and uncertain global economic outlook.

12.57pm: CPI inflation revised to 2.4 per cent in Q4: "The path of CPI inflation is revised downwards to 2.4 per cent in Q4:2018-19, 2.9-3.0 per cent in first half of 2019-20 and 3.5-3.8 per cent in the second half of of 2019-20, with risks broadly balanced," says the RBI.

12.55pm: The RBI on inflation: The inflation path during 2019-20 is likely to be shaped by several factors. First, low food inflation during January-February will have a bearing on the near-term inflation outlook. Second, the fall in the fuel group inflation witnessed at the time of the February policy has become accentuated. Third, CPI inflation excluding food and fuel in February was lower than expected, which has imparted some downward bias to headline inflation. Fourth, international crude oil prices have increased by around 10 per cent since the last policy. Fifth, inflation expectations of households as well as input and output price expectations of producers polled in the Reserve Bank's surveys have further moderated.

12.41pm: "The latest data on manufacturing activity and business confidence suggest that growth lost momentum in Q1 of 2019. The monetary policy stances of the US Fed and central banks in other major advanced economies (AEs) have turned dovish," says the RBI.

12.34pm:  Mustafa Nadeem, CEO, Epic Research, says: "It's a much expected and welcoming decision from the RBI. The street was discounting the same and the industry and sectors were looking forward to it. Amid lower inflation and lower interest rate scenario globally; this move will certainly attract much liquidity for the economy. We are already seeing good numbers on FII fronts while this move will make sure the objective of growth is fulfilled."

12.25pm: Joseph Thomas, Head Research at Emkay Wealth Management said, "The RBI has adopted a very sensible and pragmatic approach by cutting  the repo rate by 0.25 %  while keeping the policy stance neutral. It takes cognizance of the likelihood or potential for inflationary pressures emerging from food prices and fuel prices, and also fiscal pressures from the large government borrowing programme. The liquidity management through OMOs, Repos and also the occasional currency swaps would help a somewhat better propagation of the impact of rate modifications to the lower levels".

12.15pm: The reverse repo rate under the  liquidity adjustment facility stands adjusted to 5.75 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 6.25 per cent, says the RBI.

12.05pm: The RBI says these decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.

Some industry expectations from the MPC included reduction in Cash Reserve Ratio (CRR) from 4 per cent to 3 per cent; reduction in minimum investment required by ARCs in security receipts (SRs) from 15 per cent to 5 per cent; and ARCs may be permitted to subscribe to equity and extend interim finance for cases under IBC. A panel of economists, including former Chief Economic Adviser Arvind Virmani, on Tuesday called for at least 0.25 percentage point rate cut as the real interest rate in India right now is very high. "It is high time time to ease monetary policy," Virmani said.

The MPC, which decides on key interest rates, will meet six times during this financial year. Headed by RBI Governor Shaktikanta Das, the committee also includes two representatives from the central bank and three external members. The external members are Indian Statistical Institute professor Chetan Ghate, Delhi School of Economics Director Pami Dua and Indian Institute of Management-Ahmedabad professor Ravindra H Dholakia.

A week back, Federal Open Market Committee (US) in its last bi-monthly meeting changed its stand and announced that there would be no rate hike this year, after announcing previously that two rate hikes would be appropriate in 2019. The Federal Reserve - US Central Bank - reduced expectations on GDP and inflation and forecast a higher unemployment outlook.

Also read: What will be the RBI monetary policy committee's stance in the first post-Budget statement?

Edited by Manoj Sharma

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