Home / Industry / Banking /  RBI Monetary Policy: Central bank cuts key rate unexpectedly, say experts

The Reserve Bank of India on Thursday in a surprise move lowered interest rates and shifted its stance to "neutral" from "calibrated tightening" to boost a slowing economy after a sharp fall in the inflation rate.

The monetary policy committee (MPC) cut the repo rate by 25 basis points to 6.25%, as predicted by only 21 of 65 analysts polled by Reuters. Most polled respondents had expected the central bank to only change the stance, to neutral.

Four of six members of the MPC voted to cut the rates, while all six members voted for a change in the stance.

Aurodeep Nandi, India Economist, Nomura, Mumbai

"The MPC's U-turn – from 'calibrated tightening' in December (which effectively ruled out a rate cut) to a decision to cut rates in February is a surprise."

"We did expect a rate cut later this year, but the front ended delivery is a surprise even relative to our expectations."

Also read RBI Monetary Policy: Key highlights

"The RBI has seen through the expansionary budget, as well as the sticky core inflation, and has found the recent softness in inflation prints to "open up space for policy action."

Puneet Pal, Deputy Head at DHFL Pramerica Mutual Fund, Mumbai

"(It) won't really be a boost for elections because you have to see the transmission from actual lending rates which may take some more time. It will not happen immediately."

"It is a dovish tone because they have reduced their PPI targets and I think there will be another rate cut but difficult to say whether or not in April."

"I don't think RBI's independence is compromised because headline inflation has been coming down and in the last policy RBI had hinted that if the headline inflation continues to undershoot their projection it can open up to policy easing."

"If you look inflation data and growth outlook, it was calling for a rate cut and the only question was if it happened in Feb or April."

Also read: Middle-class households, farmers get a breather from RBI

Shashank Mendiratta, economist, IBM, New Delhi

"The central bank's commentary on inflation and growth support a dovish outlook for the policy.

"On growth, the RBI once again highlighted downside risks to its forecast of 7.4%. We concur with that assessment. Trade related uncertainties due to US-China trade tensions are likely to weigh on India's growth as well. The central bank also acknowledged presence of negative output gap due to tepid private investment and easing in private consumption."

"We think the impact of budget measures on growth are likely to materialise with a lag which should provide the RBI with space for rate cuts."

"There is a possibility of another rate cut by the central bank in April. The macro backdrop as such supports the RBI's stance and does not raise questions over its independence."

Rupa Rege Nitsure, Chief Economist, L&T Financial Services, Mumbai

"Based on the evolving dynamics of inflation, demand and growth, this is the perfect policy response in the current circumstances. Aligning NBFCs' (non-banking financial companies') risk weights to cost of bank borrowings will go a long way in correcting the distortions.

"By duly incorporating financial stability considerations in its monetary policy response, the RBI has done a great job in boosting the market sentiment."

This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.

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