Reserve Bank of India (RBI) Governor Shaktikanta Das (AFP)
Reserve Bank of India (RBI) Governor Shaktikanta Das (AFP)

RBI Monetary Policy Committee announces rate cut: Highlights

  • RBI's Monetary Policy Committee (MPC) has reduced the policy repo rate by 25 basis points with immediate effect
  • The MPC has also decided to change the monetary policy stance from calibrated tightening to neutral

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) today cut the repo rate or the rate at which the central bank lends to other banks by 25 basis points to 6.25%. It also changed the policy 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.

The rate cut is in consonance with achieving the medium-term objective of maintaining inflation at the 4% level while supporting growth, RBI said. A cut in rates can make loans cheaper and can boost investment activities in the economy.

07 Feb 2019, 03:59:01 PM IST

What RBI told analysts at conference call

- RBI’s Viral Acharya said they don’t yet have a view on CSO data, need more details.

- RBI’s Acharya liquidity decisions reviewed at weekly, fortnightly horizon, sometimes more frequent.

- RBI’s Acharya says will take a call on choice of instruments to deal with liquidity situation.

- RBI’s Acharya says since peak of stress in commercial paper market in Sep, Oct, matters have eased.

- RBI says all factors facing real estate, other sectors factored into growth, inflation projections.

-RBI’s Patra says have estimated the output gap.

-RBI’s Patra says output gap is modestly negative, to narrow.

-RBI’s Patra says have assumed a normal monsoon while framing policy.

-RBI’s Patra says there will be upside risk if monsoon isn’t normal.

-RBI Governor says constantly monitoring liquidity situation.

-RBI Governor says measure on liquidity to depend on evolving situation

-RBI’s Vishwanathan says we are looking at what NBFCs are doing

-RBI’s Patra says taken into account analytics related to core inflation

-RBI Governor says to ensure govt’s FY20 borrowing plan to not crowd out private investment

-RBI’s Vishwanathan says not looking at harmonizing regulations for different products from various segments

-RBI’s Vishwanathan says RBI working on holding company structure framework

-RBI Governor says FY19, FY20 fiscal deficit broadly in line with govt’s fiscal consolidation aim

-RBI Governor says to meet govt officials on FY20 borrowing programme next month

-RBI’s Acharya says do not specifically target a particular real interest rate

-RBI’s Acharya says we do take into impact of real interest rates on headline inflation

07 Feb 2019, 03:37:09 PM IST

PCA framework exit to be only driven by data: RBI  

RBI Governor Shaktikanta Das said moving 3 banks out of PCA framework was based on their quarterly earnings and capital infusion by the government. He said any step to move banks out of PCA framework will be only data-driven.

07 Feb 2019, 03:32:24 PM IST

RBI’s Michael Patra says there will be upside risk if monsoon isn’t normal  

07 Feb 2019, 03:30:29 PM IST

RBI’s Vishwanathan says exposure of all NBFCs to be linked to ratings  

07 Feb 2019, 03:25:34 PM IST

RBI permits companies participating in insolvency process to tap ECB route  

In a bid to facilitate resolution process under insolvency law, the RBI has proposed to permit bidders to raise funds through external commercial borrowing for repayment to the existing lenders.

As per the existing guidelines, the proceeds of External Commercial Borrowing (ECB) denominated in either foreign currency or Indian Rupee, are not permitted to be utilised for repayment or for on-lending for repayment of domestic Rupee loans. 

07 Feb 2019, 02:38:21 PM IST

Rate cut will help NBFCs to recover faster: Piramal Capital and Housing Finance MD 

“The 25 bps cut in policy rates is a welcome move and in line with industry expectations as well as with central banks in advanced economies. Resulting lower cost of funds would help the NBFC sector to recover faster and its positive effects would trickle down to the larger sections of the economy namely real estate and MSMEs," said Khushru Jijina, MD, Piramal Capital and Housing Finance.

07 Feb 2019, 02:36:14 PM IST

Kotak expects another rate cut in April MPC  

"With the stance change accompanied by the rate cut in the February meeting itself, we expect another rate cut of 25 bps in the April policy. We were expecting two rate cuts (in April and June) along with stance change to ‘neutral’ in February," Kotak Securities said on the RBI MPC decision.

It said that the tone of the policy communique was quite dovish with RBI reducing its inflation estimates significantly, specifically for the first half of FY20.

07 Feb 2019, 02:32:53 PM IST

RBI takes right steps to help boost end user demand: Knight Frank MD  

The reduction in repo and reverse repo rates by the RBI by 25 bps is a welcome move, which we hope will provide a further fillip to the demand side for real estate, said Shishir Baijal, chairman and managing director, Knight Frank.

He said as a result of this reduction, they hope that banks will pass on the benefits of the revised rates to the end consumer of loans.

07 Feb 2019, 02:13:55 PM IST

RBI eases norms for bank lending to well-rated NBFCs  

The RBI today eased norms for maintaining risk weights on bank lending to non-banking finance companies or NBFCs. This move was welcomed by analysts as it will allow banks to lend more to stronger NBFCs. The RBI also announced harmonization of different categories of NBFCs to provide them with higher flexibility in their operations. Many NBFC shares surged after the policy announcement. Shares of L&T Financial Holding, Manappuram Finance and Muthoot Finance climbed 6% after the RBI announcement. (Read more)

07 Feb 2019, 02:09:43 PM IST

RBI Governor Shaktikanta Das "passes litmus test": RSS economic wing  

India's new Reserve Bank of India (RBI) Governor Shaktikanta Das has "passed the litmus test" by cutting the policy rate on Thursday, a leader of the economic wing of the powerful Hindu nationalist group Rashtriya Swayamsevak Sangh, told Reuters.

The rate cut will politically benefit Modi's government as it would boost economic growth and lending to small businesses, Ashwani Mahajan, co-convenor of the Swadeshi Jagran Manch, said.

The central bank unexpectedly lowered interest rates and, as anticipated, shifted its stance to "neutral" to boost a slowing economy after a sharp slide in the inflation rate.

07 Feb 2019, 02:03:54 PM IST

RBI rate cut to boost economy: Piyush Goyal  

Finance minister Piyush Goyal said the RBI's decision will boost the the economy and lead to affordable credit for small businesses, homebuyers.

07 Feb 2019, 02:00:01 PM IST

Rate cut surprises Lakshmi Vilas Bank treasury head R.K. Gurumurthy  

Lakshmi Vilas Bank treasury head R.K. Gurumurthy said the rate cut is a "somewhat surprise move" and will boost retail demand for both housing and auto loans, which are in a majority of the cases priced on a floater basis.

07 Feb 2019, 01:48:09 PM IST

Balanced, pragmatic policy statement: DEA secretary  

Praising RBI's MPC statement as very balanced and pragmatic, Economic Affairs Secretary Subhash Chandra Garg said the assessment of growth and inflation is quite realistic and underlines low inflation and high growth path for India for 2019-20.

"Welcome change of stance to neutral and rate cut by 25 bps. Also welcome removal of FPI restriction," he tweeted.

07 Feb 2019, 01:28:32 PM IST

RBI board meeting on 18th  

On the interim dividend payment which is badly needed for the government to meet its upwardly revised fiscal deficit target, RBI Governor Shaktikanta Das said this is a legal provision and the next board meeting salted for February 18 will decided on the quantum and the timing. He said it is up to the government to decide how to spend it.

07 Feb 2019, 01:09:49 PM IST

RBI allows bidders to borrow abroad to repay rupee loans of insolvent companies  

The Reserve Bank of India (RBI) on Thursday allowed bidders of insolvent companies to raise extra commercial borrowings (ECBs) abroad and use those proceeds to repay rupee loans of insolvent companies they are keen to acquire. (Read more here)

07 Feb 2019, 12:59:10 PM IST

‘Inflation data, growth outlook called for a rate cut’  

Puneet Pal, Deputy Head At DHFL Pramerica Mutual Fund, said if you look at inflation data and growth outlook, it was calling for a rate cut and the only question was if it happened in February or April.

"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."

07 Feb 2019, 12:56:12 PM IST

Surprised by rate cut: Nomura economist  

Nomura economist Aurodeep Nandi is surprised by 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.

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

07 Feb 2019, 12:51:54 PM IST

Interim dividend spending is a govt call: RBI  

RBI Governor Shaktikanta Das said interim dividend payment is a legal provision and it is up to the government to decide how to spend it.

07 Feb 2019, 12:49:57 PM IST

No rate action till inflation is down: RBI  

RBI rules out another rate action till inflation comes down to the mandated. 

07 Feb 2019, 12:48:47 PM IST

Inflation expectations of households down: RBI  

The Reserve Bank’s surveys show that inflation expectations of households as well as input and output price expectations of producers have moderated significantly.

07 Feb 2019, 12:35:56 PM IST

RBI to set up working group for agricultural loan issues  

The Reserve Bank of India on Thursday said it would set up an internal working group to examine issues pertaining to agricultural loans, including regional disparity and extent of coverage.

The central bank also raised the limit for collateral–free farm loans to 160,000 from the current 100,000, in view of overall inflation and a rise in agriculture input costs.

The move comes days after India's government pledged 750 billion rupees to support poor farmers and reduced the tax burden for the middle class, as it looked to rally support from voters with the final budget before a general election. (Reuters

07 Feb 2019, 12:31:20 PM IST

RBI Governor promises liquidity  

RBI Governor Shaktikanta Das has promised to ensure liquidity to all sectors. Impact of various budget proposals are factored into inflation projections, he said.

07 Feb 2019, 12:28:06 PM IST

Bonds gain after rate cut  

Sovereign bonds rallied after the RBI cut its key rate citing easing inflation, providing some relief to traders concerned about a record government borrowing program. The rupee fell.

The yield on the most-traded 2028 bond dropped 5 basis points to 7.51 percent, cooling from 7.57 percent from before the decision. The rupee fell as much as 0.3 percent to the dollar.

07 Feb 2019, 12:23:40 PM IST

Urban cooperative banks may soon get umbrella organisation  

The Reserve Bank has received a proposal for setting up an umbrella organisation from the National Federation of Urban Cooperative Banks and Credit Societies Ltd. (NAFCUB). A decision on the specifics of the proposal will be taken by RBI soon.

07 Feb 2019, 12:21:02 PM IST

Bulk deposits definition increased to ₹2 crore  

To enhance the operational freedom of banks in raising deposits, the RBI has revised the definition of bulk deposits as single rupee deposits of 2 crore and above. At present, deposits of 1 crore and above are treated as bulk deposits.

07 Feb 2019, 12:15:59 PM IST

Next monetary policy announcement on April 4 

The next meeting of the MPC is scheduled from April 2 to 4

07 Feb 2019, 12:12:58 PM IST

Collateral-free farm loan limit increased to ₹1.6 lakh  

The RBI has decided to raise the limit for collateral­free agriculture loans from 1 lakh to 1.6 lakh. The decision has been taken keeping in mind the overall inflation and rise in agriculture input costs. "This will enhance coverage of small and marginal farmers in the formal credit system," the RBI said in a statement.

07 Feb 2019, 12:03:06 PM IST

GDP growth to rise to 7.4% in FY20

RBI expects GDP growth to go up to 7.4% in FY20, from the FY19 government estimate of 7.2%.

Union budget proposals will boost demand by raising disposable incomes, may take time to play out: RBI.

07 Feb 2019, 11:59:05 AM IST

RBI lowers inflation target  

The path of CPI inflation is revised downwards to 2.8% in Q4 of 2018-19, 3.2-3.4% in H1 of 2019-20 and 3.9% in Q3 of 2019-20, with risks broadly balanced around the central trajectory.

07 Feb 2019, 12:01:15 PM IST

Two members voted against rate cu

The MPC said the decision to change the monetary policy stance was unanimous. Four of six members of the MPC voted to cut the rates, while all six members voted for a change in the stance.

07 Feb 2019, 11:51:59 AM IST

Policy stance changed to neutral  

The reverse repo rate under the LAF stands adjusted to 6.0% and the marginal standing facility (MSF) rate and the bank rate to 6.5%.

The MPC also decided to change the monetary policy stance from calibrated tightening to neutral.

"These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth," the RBI said in its policy statement.

07 Feb 2019, 11:49:39 AM IST

MPC cuts rate to 6.25%

On the basis of an assessment of the current and evolving macroeconomic situation at its meeting today, the Monetary Policy Committee (MPC) decided to reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 6.5 per cent to 6.25 per cent with immediate effect.

07 Feb 2019, 11:33:56 AM IST

'RBI may decide to defer rate cut'  

Uncertainty around the interplay of fiscal stimulus and inflation could make the MPC defer the rate cut in the February policy, opines Samiran Chakraborty, chief economist at Citi India.

"The timing of policy easing between February and April is less important. Markets would be surprised if the MPC leaves any hint about more than a ‘shallow’ rate easing cycle—we expect 25-50bps this year," he said.

07 Feb 2019, 11:20:53 AM IST

MPC must weigh risks of financial instability: Motilal Oswal  

As the central government was not able to meet its fiscal deficit target for the second consecutive year in 2018-19 and its gross market borrowings have risen by a huge 24% to 7.10 trillion, there have been recommendations for a more conservative monetary policy, a Motilal Oswal report said.

07 Feb 2019, 11:04:01 AM IST

'MPC likely to be cautious'  

Kotak Securities said it expects the MPC to be cautious on the inflationary impact of the budget even as fiscal slippage seems manageable.

"The MPC might raise concern on the quality of expenditure, especially when the borrowings (government and public enterprises) have increased significantly," it said adding that the MPC decision will hinge solely on the expected benign inflation trajectory.

07 Feb 2019, 10:53:43 AM IST

Economists poll differ over rate cut: HDFC Securities  

Economists and market experts are divided on the rate cut but were confident of a change in stance by the RBI, says HDFC Securities

07 Feb 2019, 10:17:12 AM IST

Hopeful that RBI will lower rates: NITI Aayog vice chairman  

NITI Aayog's vice chairman Rajiv Kumar has said that the RBI will “hopefully" reduce policy rates by a quarter percentage point.

“This is the right time for RBI to think about a rate cut and give investment a boost so that all engines start firing," said Kumar, an adviser to Prime Minister Narendra Modi. “The ball is in the RBI’s court."

07 Feb 2019, 10:09:57 AM IST

Growth concerns before the MPC  

Until now, the MPC has remained sanguine about domestic growth prospects. The major driving force for the economy has been the public sector entities, which have outpaced the government in capital expenditure. However, the government is being criticised for spending too much money on revenue expenditure that leaves little money for creation of capital assets. (Read more here)

07 Feb 2019, 09:53:22 AM IST

Rupee weakens against US dollar  

Indian rupee on Thursday weakened, tracking losses in Asian currencies as dollar extended its gains for sixth sessions. Traders are cautious ahead of the key Reserve Bank of India's bi-monthly policy due at 11.45 am today. At 9.05 am, the rupee was trading at 71.76 a dollar, down 0.24% from its previous close of 71.56. The home currency opened at 71.67 a dollar.

07 Feb 2019, 09:50:34 AM IST

Enough room for MPC to change stance: Report

According to Edelweiss Securities, with headline inflation remaining below the central bank's projections, domestic growth momentum slowing and the global rate cycle peaking, the MPC may get enough room to change its stance and possibly go for a rate cut.

However, the Edelweiss note also said that "what could hold RBI's hand this time is its desire to avoid a knee-jerk change in stance from 'calibrated tightening' to a rate cut. Also, and more importantly, it may want to tread cautiously for now as core inflation remains elevated."

"The US Fed has taken a decisively dovish turn in the past two months, indicating that global rates have peaked out. Finally, domestic growth momentum has also moderated. All this calls for easier monetary policy," it added.

07 Feb 2019, 09:50:34 AM IST

Market indices open in green

Despite a muted trend in global markets, the key Indian equity market indices on Thursday opened higher ahead of a monetary policy announcement.

The Sensitive Index (Sensex) of the BSE, which had closed at 36,975.23 points on Wednesday, opened higher at 37,026.56 points.

Minutes into trading, it was quoting at 37,002.97 points, up by 27.74 points, or 0.08 per cent.

At the National Stock Exchange (NSE), the broader Nifty 50, which had closed at 11,062.45 points on Wednesday, was quoting at 11,060.10 points, down by 2.35 points or 0.0.02 per cent.

07 Feb 2019, 09:40:13 AM IST

Inflation target

Since the last policy in December, consumer price inflation has eased to 2.19%, undershooting the MPC’s projection of 2.7-3.2% for the second half of the current financial year. Core inflation, which excludes volatile items such as food and fuel, has, however, remained stubbornly high at 5.7%. Oil prices have remained unchanged compared with levels seen around the December policy. The MPC could also take note of the expansionary budget and the potential impact of increased rural spending on inflation. The interim budget has proposed a relief package of 75,000 crore under which the government will transfer 6,000 per year to farmers who own up to 2 hectares of land.