Monetary Policy: RBI cuts key policy rate to 6.25%

Home auto loans set to be cheaper as RBI Governor Shaktikanta Das cuts interest rates by 0.25

Home auto loans set to be cheaper as RBI Governor Shaktikanta Das cuts interest rates by 0.25

Shares of automobile companies were trading higher by up to 5 per cent on the National Stock Exchange (NSE), after the Monetary Policy Committee (MPC) of Reserve Bank of India (RBI) in its sixth bi-monthly monetary policy meeting on Thursday cut the repo rate by 25 bps to 6.25 per cent from 6.50 per cent, earlier.

"Consequently, 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%", it added.

"On the basis of an assessment of the current and evolving macroeconomic situation at its meeting today, the Monetary Policy Committee (MPC) made a decision to reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 6.50% to 6.25% with immediate effect", the RBI said in a statement.

Governor Shaktikanta Das attends a news conference after a monetary policy review in Mumbai, February 7, 2019.

"Investment activity is recovering but supported mainly by public spending on infrastructure", the MPC said in a statement.

The central bank's surprise cut in interest rate could work well with the Narendra Modi government at the Centre which wants to boost growth in an election year. However, all the members agreed on changing the policy stance to neutral. It also stayed below RBI's inflation target of 4 per cent for five consecutive months.

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Cloud engineers and sales professionals also made up the bulk of the 4,000 employees it hired during the quarter, Porat said. Additionally, the company's net income totalled $8.95 billion United States dollars (roughly $11.74 billion CAD) in Q4 2018.

The Reserve Bank of India unexpectedly cut its benchmark interest rate in Governor Shaktikanta Das's debut policy meeting, becoming the first in Asia to ease borrowing costs this year as inflation remains benign.

Das also downplayed the risk of inflation rising due to the forecast of fiscal slippage in last week's budget, and said the MPC will only look at the headline inflation number and ignore core inflation that has proven sticky.

The RBI revised the projection for Consumer Price Index inflation downward to 2.8% in the fourth quarter of 2018-'19 financial year.Retail inflation declined from 3.4% in October 2019 to 2.2% in December, which the RBI said was the lowest in the last 18 months. The next meeting of the MPC is scheduled from April 2 to 4.

Emboldened by a slowdown in inflation, the MPC under the new governor showed more concern about economic growth risks, paving the way for more rate cuts.

The six-member monetary policy committee voted 4:2 in favour of the rate cut, while the decision to change policy stance was unanimous.

The RBI policy is a very dovish one and signals further rate cuts.

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