RBI monetary policy as it happened: Repo rate cut by 25 bps; central bank wants banks to cut loan rates

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RBI monetary policy as it happened: Repo rate cut by 25 bps; central bank wants banks to cut loan rates
  • 15:29 (IST)

    The central bank has cut the repo rate but it remains to be seen whether the industry and government will be happy. There have been calls for more aggressive cut from the central bank as the industrial activity has remained weak.

    In reaction the stock market reacted declined marginally and the rupee was 63.79, up 30 paise from yesterday's close. The lukewarm reaction to the RBI's move could be because the investors have already priced in a 25 bps rate cut.

    However, it remains to be seen whether the rate cut will boost the much needed private investment, which is key to boost the sagging economy.

  • 15:14 (IST)

    RBI should have cut more aggressively, feels Knight Frank

    Shishir Baijal, Chairman & Managing Director, Knight Frank India, feels the central bank should have gone for a more aggressive cut in repo rate.

    “The policy rate cut of 25 bps by the Reserve Bank of India’s monetary policy committee is on the expected lines. While it is a welcome move we were looking forward to a much more aggressive rate cut. Considering the battery of new reforms in force, a good monsoon in progress, benign inflation numbers, favourable global environment and the overall uptick in industry sentiments a healthier lending rate could have provided the much needed thrust to fuel India’s growth story. But we are happy to see that the central bank has adopted a monetary policy that propels growth. A growing economy would signal healthy consumption across all genres of the Indian real estate,” Baijal said in a statement.

  • 15:10 (IST)

    Forget pressure on NIMs, central bank says there's scope for banks to cut loan rate further

    Despite the clear pressure on the banks' net interest margins (NIM), the RBI still thinks there is scope for further reduction in the lending rates.

    According to the governor Urjit Patel, the transmission of the rate cuts by the central bank has been much stronger in segments where the competition is firece, such as home loans, personal loans etc.

    In those segments where the rates are tied up with base rate, the transmission has been slower, he said.

    According to him, given the liquidity situation prevailing in the market, there is scope for banks to cut their lending rate further.

  • 15:02 (IST)

    Upside risks to inflation reduced

    According to the RBI statement, the upside risks to inflation have either reduced or not materialised

    These are (i) the baseline path of headline inflation excluding the HRA impact has fallen below the projection made in June to a little above 4 percent by Q4; (ii) inflation excluding food and fuel has fallen significantly over the past three months; and, (iii) the roll-out of the GST has been smooth and the monsoon normal.

  • 14:57 (IST)

    Repo rate cut by 25 bps to 6%, first cut after October 2016

    This the first cut by the Reserve Bank of India after October 2016.

    In the last four straight meetings, the RBI has left the repo rate unchanged.

    Also, now the repo rate, at 6 percent, stands at over six-and-half year low.

  • 14:54 (IST)

    Speedier clearance for projects key to boost private investment

    The monetary policy committee routes for speedier clearance of projects to boost private investment.

    "The MPC is of the view that there is an urgent need to reinvigorate private investment, remove infrastructure bottlenecks and provide a major thrust to the Pradhan Mantri Awas Yojana for housing needs of all. This hinges on speedier clearance of projects by the States," the RBI statement said.

  • 14:52 (IST)

    4 members of MPC voted in favour of 25 bps, 1 in favour of 50 bps, 1 for status quo

    The decision to cut repo rate by 25 bps was not unanimous at the monetary policy committee.

    According to the statement, Chetan Ghate, Pami Dua, Viral V Acharya and Urjit R. Patel were in favour of the monetary policy decision, while Ravindra H. Dholakia voted for a policy rate reduction of 50 basis points and Michael Debabrata Patra voted for status quo.

    The central bank will publish the minutes of the MPC’s meeting by 16 August.

  • 14:46 (IST)

    Visible signs of seasonal price spikes in prices of tomatos, onions milk

    According to the RBI, prices of food and beverages, which went into deflation in May 2017 for the first time in the new CPI series, sank further in June as prices of pulses, vegetables, spices and eggs recorded year-on-year declines and inflation moderated across most other sub-groups.

    "There are now visible signs, however, of the usual seasonal price spikes, even if with a delay and especially in respect of tomatoes, onions and milk," the RBI said.

  • 14:41 (IST)

    GVA forecast kept at 7.3% as central bank retains the neutral stance

    The central bank has maintained the GVA forecast for the current financial year at 7.3 percent. It also maintains neutral policy stance with focus on 4 percent for CPI.

    "In June, retail inflation measured by year-on-year changes in the CPI plunged to its lowest reading in the series based to 2011-12. This was mainly the outcome of large favourable base effects which are slated to dissipate and reverse from August," the RBI said in the statement.

    HDFC's Deepak Parekh told CNBC-TV18 that the monetary policy committee has taken the right decision.

  • 14:34 (IST)

    The RBI, as expected, cut its repo rate by 25 bps to 6% and the reverse repo rate by 25 bps to 5.75%

  • 14:26 (IST)

    Should we expect any detail on demonetisation? Definitely not

    Will the RBI give any details about the demonetisation and scrapped currency notes in the policy press meet?

    The answer is a big no. The reason is that the Governor Urjit Patel has already said that the central bank is still counting the scrapped notes that flowed into the bank deposits post the note ban.

    Moreover, Arun Jaitley has reiterated the stance in the Lok Sabha yesterday.

    He said in the Lok Sabha that the RBI had received the last tranche of scrapped currency notes of Rs 500 and Rs 1,000 only in July and the central bank would take time in counting the billions of notes.

    To expect any detail on demonetisation from the RBI any time soon seems to be foolish, let alone this policy press briefing.

  • 14:12 (IST)

    A 50 bps rate cut possible? Very unlikely as it may want to wait and watch 

    There is a section of analysts who feel the RBI should go for a 50 bps rate cut and not just a 25 bps reduction. The reason they cite is the disinflation happening in the economy that is giving room for such a move.

    "We believe RBI must show conviction in the massive disinflation in the economy and announce a 50 bps cut rather than a customary 25 bps cut," Nikhil Gupta, chief economist with Motilal Oswal Securities, said in a recent article in The Economic Times.  

    However, Gupta feels the ghosts of past stance and the challenge of a change in the mindset of three MPC members might postpone the rate cut to October. 

    Moreover, the RBI would want to wait and watch the progress of the monsoon.

  • 13:57 (IST)

    Rate cut this time may be a foregone conclusion but future actions uncertain

    A rate cut by the RBI in this policy statement seems to be a foregone conclusion as most of the economists are betting on it due to the sharp fall in retail inflation to 1.54 percent.

    However, nobody is sure of further rate actions after the cut this time. "We reckon that the room for further monetary accommodation remains limited amid (1) mean reversion of food prices, (2) rising real rural wages, (3) onset of global financial tightening and (4) adverse base effect," Kotak Bank said in a recent note.

    The prices of certain vegetables are already going up, though traders say this is a temporary blip. According to various reports, the rains are in suprlus. So hopes are a major disruption is unlikely in the supply going ahead.

  • 13:46 (IST)

    Shares trade flat as investors turn cautious; rupee up 32 paise

    Ahead of RBI monetary policy statement, the stock market was trading flat. On Tuesday, the markets had hit record highs on hope of a rate cut from the central bank. Investors seem to have turned cautious ahead of the policy.

    At 1:38 pm, the BSE Sensex was flat at 32,550, down 25 points, and the Nifty 10095, down 20 points. 

    The rupee was up 32 paise or 0.5 percent at 63.77 against the dollar.

    Investors seem to have already priced in a rate cut.

With retail inflation receding to record low levels and industrial activity staying weak, the Reserve Bank is expected to cut its benchmark lending rate - repo rate - by at least 0.25 percent in its third bi-monthly monetary policy review on Wednesday.

A Reserve Bank of India (RBI) logo is seen at the entrance gate of tts headquarters in Mumbai, India June 7, 2017. REUTERS/Shailesh Andrade

A Reserve Bank of India (RBI) logo is seen at the entrance gate of tts headquarters in Mumbai, India June 7, 2017. REUTERS/Shailesh Andrade

In a Reuters poll, 40 of the 56 economists polled predicted a repo rate cut by 25 basis points to 6 percent, the lowest since November 2010.

Encouraged by significant price improvement, bankers expect the central bank, which has kept rates on hold at 6.25 percent for the fourth straight time citing risk to inflation, to change its monetary stance and may even go for an aggressive rate cut.

"The expectation is of rate cut of a minimum 25 basis points as inflation has eased and also as industrial growth continues to remain weak. A rate cut will give a push to credit growth which has been sluggish from last many quarters," Bank of Maharashtra Managing Director R P Marathe said.

Kunal Kumar Kundu of Societe Generale also echoed similar views. "The recent sharp decline in inflation has clearly caught the RBI by surprise. Clearly, the stage is set for another rate cut," Kundu said in a note according to Reuters.

"Normal monsoon, falling crude prices, weak capacity utilisation and a strong currency all suggest that India's headline inflation does not face much tailwind."

Indian Bank Managing Director Kishor Kharat said there is an expectation that there could be 0.25 per cent rate cut by RBI this time.

The RBI may not touch Cash Reserve Ratio or Statutory Liquidity Ratio as there is adequate liquidity in the market, Kharat added.

The six-member monetary policy committee (MPC) of the RBI headed by RBI Governor Urjit Patel will announce the outcome by 2:30 pm today.

RBI's repo rate at present stands at 6.25 percent, reverse repo rate at 6 percent and marginal standing facility rate at 6.5 percent. Its cash reserve ratio or CRR for banks stands at 4 percent and statutory liquidity ratio at 20 percent.

CRR is the proportion of deposits banks need to keep with the RBI and SLR the proportion of deposits they should invest in government securities.

With inputs from PTI

Updated Date: Aug 02, 2017 15:31 PM

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