India unexpectedly cuts key rate to boost slowing economy
- Author: Darren Santiago Feb 08, 2019,
Feb 08, 2019, 1:02
While the decision to change the policy stance was unanimous, four out of six members voted for a rate cut while two opted for status quo.
The Reserve Bank of India Thursday projected an economic growth rate of 7.4 per cent for the next fiscal, up from 7.2 per cent estimated for the current fiscal by Central Statistics Office (CSO).
Expect home and auto loan EMIs to become cheaper by say Rs 300-400 per month if not by Rs 600-700, which needs a more charitable 50 bps repo rate cut. This was the first monetary policy review for the former economic affairs secretary, who took over as RBI Governor in the second week of December 2018.
The central bank also sounded bullish about the prospects in the real sector, only marginally reducing its 2019-20 GDP growth forecast to 7.4 percent from 7.5 percent earlier, amid sprouting investment revival signs.
The RBI also announced a string of regulatory changes including raising the limit of collateral free bank loans for farmers to Rs 1.6 lakh from Rs 1 lakh now, among others. One, there will likely be a series of rate cuts from this point and the cumulative impact will considerably put pressure on banks to pass on the benefit to the end-consumer.
RBI Governor Shaktikanta Das said, "we are constantly & continuously monitoring the liquidity situation and based on the requirement we will ensure that there is no liquidity scarcity".
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"Investment activity is recovering but supported mainly by public spending on infrastructure", the MPC said in a statement.
Assuming a normal monsoon in 2019, headline inflation estimates are revised downwards to 2.8 per cent in Q4, FY19, 3.2-3.4 per cent in the first half of FY20 and 3.9 per cent during the third quarter of FY20, with risks broadly balanced around the central trajectory.
The committee though flagged external headwinds including trade tensions, and crude oil prices, which though appear well-behaved now. "Secondly, in spite of soft crude oil prices and the lagged impact of the recent depreciation of the Indian rupee on net exports, slowing global demand could pose headwinds". It also stayed below RBI's inflation target of 4 per cent for five consecutive months.
In another measure, resolution applicants under corporate insolvency resolution process (CIRP) will also be allowed to avail of external commercial borrowings (ECBs) to repay existing lenders. "Growth in rural wages moderated in October", RBI said.
More importantly, the MPC has spelt out the change in policy stance to "neutral" from what was called "calibrated tightening so far".
The RBI, however, said that "some uncertainties warrant careful monitoring", flagging seven key issues.