Markets

RBI: Repo rate reduced by 25 basis points

RBI: Repo rate reduced by 25 basis points

Das didn't disappoint and has announced an eventful policy.

In a tweet, Economic Affairs Secretary Subhash Chandra Garg welcomed the rate cut and stance change, saying the MPC had come up with a "balanced and pragmatic policy statement". This is the first rate cut announced by the MPC since August 2017.

The Reserve Bank of India (RBI) on Thursday retained the country's gross domestic product (GDP) forecast for FY20 at 7.4 per cent. Addressing the media on Monetary Policy, RBI Governor Shaktikanta Das said GDP projection for 2019-20 is 7.4 per cent while the inflation rate is estimated at 3.2-3.4 per cent in the first half of the year 2019-20 and 3.9 per cent in the third quarter of 2019-20.

The rate cut continues a trend in which some major central banks, anxious about slowing global growth and helped by cooling inflation, have moved firmly away from last year's tightening moves or tones. "It also signals a commitment to a symmetric policy to achieve its 4 per cent inflation target - a departure from the RBI's previous one-sided, conservative stance that aimed to keep inflation below the target."- Abhishek Gupta, Bloomberg Economics.

Technically, a 25 bps rate cut doesn't mean much to the borrower. The repo rate cut will lead to a decrease in EMIs on Home Loans, Car Loans and Personal Loans as the banks would likely decrease the interest rates. Inflation estimates have been revised very sharply lower by the central bank, according to a Livemint report.

Shaktikanta Das, RBI Governor. That sends the message clear to lenders.




The repo rate is the rate at which the Reserve Bank lends short-term money to the banks, while the reserve repo rate is the rate at which the central bank borrows money from commercial banks.

With inflation largely under control, the big concern for the government is growth, particularly in an election year.

In his first presser after taking over the charge at RBI, Das had made it clear that the RBI also can't ignore growth worries in the economy.

In a statement, the central bank said that CPI inflation was marginally lower than the projected earlier and there have been downward revisions in inflation projections during the course of the year, that reflected the "unprecedented soft inflation recorded across food sub-groups".

With regard to inflation, the central bank said there were "some uncertainties warrant careful monitoring". "Investment activity is recovering but supported mainly by public spending on infrastructure".

The MPC also noted that "after exhibiting an uptick in the festive month of October, industrial activity, measured by the index of industrial production (IIP), slowed down in November".