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RBI Monetary Policy Latest Updates: RBI changes monetary policy stance from neutral to accommodative. The central bank cuts benchmark lending rate by 0.25 percent to 5.75 percent The Reserve Bank will go for an unconventional 0.35 percent cut in its key lending rate at the forthcoming review on Thursday as inflation is within its comfort range. It can be noted that since Governor Shaktikanta Das has assumed office, the central bank has cut its key rates by a cumulative 0.50 percent as inflation ebbed. A wide set of analysts expect the RBI to cut rates by 0.25 percent at Thursday review, primarily to address worries on growth, which has dipped to a 5-year-low of 5.8 percent for the March quarter. Headline inflation, however, has risen sharply to 2.92 percent in April. [caption id=“attachment_5129811” align=“alignleft” width=“380”]
Representational image. Reuters.[/caption] While expecting the 0.35 percent cut, analysts at the foreign brokerage Bank of America Merrill Lynch said they expect the headline inflation to rise to 3.3 percent in May, but added that it is within the 2-6 percent range which the government has set for the RBI. It added that risks on the fiscal deficit and currency front are also fading with Prime Minister Narendra Modi’s re-election, which will help for a deepercut than the 0.25 per cent consensus, in line with Das’ speech in New York last month which made a mention of unconventional cuts not in 0.25 percent or multiples. It added that the Modi government has shown fiscal discipline by not competing with the opposition Congress’ social security scheme which would have entailed expenditure of 1.9 percent of GDP. The brokerage also said that the transmission to lending rate cuts to prop up growth “needs sustained RBI easing”, it said. The brokerage said its activity indicator also signals weakness for 1-2 quarters more, but added that the growth can be pushed up to 7.5 percent in FY20 if the RBI cuts rates by 0.50 percent and also if the state-run lenders are adequately recapitalised using the excess RBI capital identified by the Bimal Jalan report. The US Federal Reserve has also turned dovish, with the US-China trade war dragging on, the note said
RBI Monetary Policy 2019 Updates: Nifty around 11,900, Sensex down by 300 points as central bank cuts repo rate by 25 bps to 5.75%
Slashing benchmark lending rates for the third time this year, RBI cut its repo rate by 0.25 per cent Thursday and said its future monetary policy stance will be more accommodative.
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Rate cut as expected: Joseph Thomas, Head Research- Emkay Wealth Management
“The RBI policy announcement is exactly on the same lines as expected by most of the market participants. The repo rate cut of 0.25 % and the change of stance from neutral to accommodative is key to supporting the sagging economic growth. The projected growth has been lowered to 7%. The policy also has broad indications of more action on the liquidity front from the RBI in the coming days. This also confirms the commitment of the central bank to better transmission of the rate cut effects through liquidity”
Rupee pares most early losses post-RBI rate cut
The rupee pared most of its early morning losses and was trading marginally down by 5 paise at 69.31 against the American currency after the Reserve Bank of India cut its repo rate by 0.25 percent Thursday.
The rupee had opened on a weak note at 69.41 at the interbank forex market and then fell further to 69.45 vs the US dollar. Following the RBI’s Monetary Policy Committee (MPC) decision, the local currency recovered most of the lost ground. The domestic currency was trading at 69.31 at 1248 hrs, down 5 paise over its last close. The rupee had settled at 69.26 against the US dollar Tuesday. Indian bonds and Forex markets were closed Wednesday on account of Id-Ul-Fitr.
Rate cut was imperative: Parth Mehta, Managing Director, Paradigm Realty
“The rate cut of 25 bps was imperative to induce liquidity in the Downward spiral economy on the back of all indicators showing slowdown like the peak unemployment rate, shrinking GDP rates, nose-diving auto sales numbers, etc. Since the CPI was well under 2.5 percent and recent crude prices dip, a higher rate cut would have been more cheerful for the markets. The stance change from neutral to accommodative by RBI indicates the cognizance about the current fragile business environment and we expect further rate cuts in times to come. Rate cuts shall enable affordability in terms of home loans and thus lowered EMI, lower GST, tax rebate for income up to Rs 6.5 lakhs (including section 80C) for the middle class as per as interim budget. All these shall give some sales impetus to real estate.”
New NPA resolution norms in 3-4 days: Das
The Reserve Bank will issue a revised circular on bad loan recognition within the next three-four days, replacing the 12 February circular that was struck down by the apex court. On 2 April, the Supreme Court had declared as “ultra vires” the February 12 circular that mandated banks to label even a day’s default as NPA.
Anuj Puri, Chairman: ANAROCK Property Consultants
“As widely anticipated, RBI has once again reduced its key lending rate by 25 basis point. The lending rate now stands at 5.75, and this is the third consecutive rate cut since February 2019. Even though the Indian economy is perceived to be in the grips of a slowdown, the markets are quite bullish on Modi’s return to power with a thumping majority. This may eventually lead to mitigated risks in fiscal deficit – in all likelihood, it is sensing this that the RBI has made this rate cut. As for the housing sector, this rate cut may send only send out positive notional signals – its real gain can be realised only if banks pass on the benefits to actual homebuyer borrowers. The apex bank will need to ensure that this actually happens at the ground level since there has been little evidence of such transmissions in the recent past.”
Sensex tanks over 300 points after RBI policy outcome
The benchmark BSE Sensex cracked over 300 points and the NSE Nifty dropped below the 12,000 level in afternoon session Thursday tracking losses in financial stocks after the Reserve Bank cut its key interest rates for the third time in a row.
The 30-share index was trading 333.32 points, or 0.83 per cent, lower at 39,750.22, and the broader Nifty fell 114.35 points, or 0.95 percent, to 11,907.30. Top losers in the Sensex pack include IndusInd Bank, Yes Bank, Vedanta, SBI, L&T, M&M, Tata Steel, RIL, TCS, ICICI Bank and HDFC twins, shedding up to 5 percent.
Rate cut an encouraging move: Farshid Cooper, MD, Spenta Corporation
“Given the ongoing economic slowdown, with both the consumption and investment engines wavering, the third cut in the repo rate by 25 basis points is an encouraging move to stimulate the economy and will immediately spur a growth for sectors like real estate. Banks should reduce the lending rates and ensure that the home loan borrowers reap the benefits of this move. This would enable the borrowing to come down and make it more convenient for home buyers to purchase their dream homes. It will further improve sentiments and encourage demand for real estate and boost employment in the nation.”
RBI policy cut to provide respite to real estate: Shishir Baijal, Chairman & Managing Director, Knight Frank India
“The first rate cut in the newly elected government’s regime is certainly a welcome step, especially for the real estate sector. The benefit of lower policy rate in terms of better credit cost as well as higher liquidity will hopefully be transmitted further by banks to NBFCs as well as home buyers. Also, the change in policy stance from neutral to accommodative is a welcome shift as it lays ground for further rate cuts. The cash-crunched NBFCs will definitely benefit from inflow of capital which will, in turn, benefit developers as well as home-buyers. NBFCs have been facing a liquidity crisis and this has negatively impacted their loans to real estate, including construction finance. Besides capital infusion into this important financier segment, this rate cut will also improve the home-buyers affordability and stimulate housing demand at this critical juncture.”
Rate cut will create a positive ecosystem: Rohit Poddar, Managing Director, Poddar Housing and Development Ltd
“The reduction in the repo rate is essentially driven by the broad-based deceleration in the economy in recent months. This shows the commitment of the RBI to ensure the transmission of rate cuts to the end consumers. Slashing down the rates by 25 bps along with a changed stance will create a positive ecosystem and stimulate the growth dynamics and investment cycle in the real estate sector. It will consolidate the buying sentiments with lower EMI. There is a slight reform in liquidity issues in the sector after two back to back rate reductions, and a cut-down for the straight third time will definitely undertake the liquidity shortfall in the sector at large. We expect more such actions by RBI on the liquidity front.”
RBI removes charges on RTGS/NEFT transactions to boost digital transactions
The Reserve Bank of India Thursday said it has done away with charges on fund transfers through RTGS and NEFT routes to boost digital transactions and asked banks to pass on the benefits to customers. The Real Time Gross Settlement System (RTGS) is meant for large-value instantaneous fund transfers while the National Electronic Funds Transfer (NEFT) System is used for fund transfers up to Rs 2 lakh.
Country’s largest bank SBI charges between Re 1 and Rs 5 for transactions through NEFT and between Rs 5 and Rs 50 for RTGS route. In its statement on developmental and regulatory policies after the Monetary Policy Committee’s meeting, the RBI said it levies minimum charges on banks for transactions routed through RTGS and NEFT system for other fund transfers.
Highlights of RBI’s monetary policy statement
Following are the highlights of the second bi-monthly monetary policy announced by the RBI on Thursday:
* Repo rate reduced by 25 bps to 5.75 percent for the third time in a row
* Reverse repo rate now stands at 5.50 percent, marginal standing facility (MSF) rate 6 percent
* RBI changes policy stance to accommodative from neutral
* Cuts GDP growth forecast to 7 percent from 7.2 percent for FY20
* Raises retail inflation forecast for April-September to 3-3.1 percent and 3.4-3.7 percent in Oct-Mar
* Projects upward bias in food inflation in near term due to rising prices of food items
* Forecast risks to inflation trajectory from monsoon uncertainties, unseasonal spike in vegetable prices, crude oil prices, financial market volatility and fiscal scenario
* Waives RTGS and NEFT charges to promote digital transactions
* Sets up a panel to review ATM charges, fees levied by banks
* To issue draft guidelines for ‘on tap’ licensing of small finance banks by August
* Flags sharp slowdown in investments, moderation in private consumption growth as concern
* All six MPC members voted in favour of 0.25 percent policy rate cut
* Average daily surplus liquidity in the system at Rs 66,000 crore in early June
* Foreign Exchange Reserves stood at $421.9 billion on 31 May, 2019
* Next monetary policy statement on 7 August.
– PTI
RBI closely monitoring NBFC sector to ensure financial stability: Governor Das
“I do believe that our supervision mechanism has been very robust and our records are shared with the individual entities with a special instruction to place it in front of the Board. The compliance of the reports are also supervised,” the governor said.
Das said the central bank is not aware of the Serious Fraud Investigation Office’s (SFIO) chargesheet in the IL&FS matter.
The decision on interest rate driven by inflation and growth concerns: RBI
As far as high interest rates are concerned, the central bank’s decision is driven by inflation and growth, the RBI governor said. “I would not like to spell out what should be the real interest rate. As we take decision, it is for you to take a call on how close it is to you. It is for you to take a call whether we are moving close to the real interest rate,” Das said.
Reports on banks and NBFCs placed before BFS: Das
All supervision and inspection reports of all banks and NBFCs have been placed before Board for Financial System (BFS), the governor said.
“About a fortnight ago, we announced a separate cadre for banks, NBFCs and financial institutions to strengthen our supervision. I would not like to see financial security compartmentalised as short term, medium term or long term. RBI will not hesitate to take any measure required to maintain financial stability be it in the short-term or middle-term or long-term. I would not like to spell it out what it will be and fuel speculation,” Das said.
We will ensure that there is adequate liquidity: Das
RBI is mandated to look after the financial stability of the entire economy, the RBI governor said. “In that background, we have been closely monitoring, performance and development in NBFCs and housing finance companies and main entities. Individual entities are using market mechanism to meet their liabilities and concerns. The RBI will not hesitate to take whatever steps are required to ensure financial stability is adversely impacted by any manner in any development,” Das said.
Internal working group will bring out the report on liquidity by middle of July 2019, said the governor
RBI decides to do away with charges levied on RTGS and NEFT transaction
Manufacturing activity has weakened sharply: RBI governor Shaktikanta Das
Shaktikanta Das said inflation remains below target in several economies. There is scope for the MPC to accommodate growth concerns by supporting efforts to boost aggregate demand, and in particular, reinvigorate private investment activity, while remaining consistent with its flexible inflation targeting mandate, Das said. RBI will ensure that there is adequate liquidity available for all purposes. He said that import of capital goods was anaemic during April.
RBI raises inflation projection to 3-3.1% for April-September
The MPC said a sharp slowdown in investment activity along with a continuing moderation in private consumption growth is a matter of concern. “The headline inflation trajectory remains below the target mandated to the MPC even after taking into account the expected transmission of the past two policy rate cuts,” it said.
RBI revises GDP growth for 2019-20 downwards to 7.0%
The MPC weak global demand due to an escalation in trade wars may further impact India’s exports and investment activity. Further, private consumption, especially in rural areas, has weakened in recent months, it said.
“However, on the positive side, political stability, high capacity utilisation, the uptick in business expectations in Q2, buoyant stock market conditions and higher financial flows to the commercial sector augur well for investment activity,” the MPC said in its policy statement.
All MPC members voted for a rate cut
All members of the MPC (Chetan Ghate, Pami Dua, Ravindra H Dholakia, Michael Debabrata Patra, Viral V Acharya and Shri Shaktikanta Das) unanimously decided to reduce the policy repo rate by 25 basis and change the stance of monetary policy from neutral to accommodative.
RBI cuts repo rate by 25 bps to 5.75%
Sensex, Nifty start on a cautious note ahead of RBI policy outcome
Domestic equity benchmarks BSE Sensex and NSE Nifty opened on a cautious note Thursday as investors await RBI’s monetary policy decision. The 30-share index was trading 31.03 points, or 0.08 percent, lower at 40,052.51, and the broader Nifty slipped 18.20 points, or 0.15 percent, to 12,003.45.
Top losers in the Sensex pack include Yes Bank, SBI, IndusInd Bank, Bharti Airtel, Vedanta, ICICI Bank, RIL, M&M and HDFC, shedding up to 2.91 percent.
While, PowerGrid, Bajaj Auto, HUL, Coal India, Asian Paints, HDFC Bank and HCL Tech were trading in the green.
Rupee slips 19 paise to 69.45 vs USD in early trade ahead of RBI policy outcome
The rupee opened on a weak note and declined by 19 paise to 69.45 against the US dollar in opening trade Thursday, ahead of the Reserve Bank of India’s monetary policy decision. Forex traders said, foreign fund outflows and rising crude oil prices also kept pressure on the Indian rupee
The RBI’s Monetary Policy Committee (MPC) is slated to announce its bi-monthly policy decision later in the day.