HYDERABAD: The RBI concluded that India needs some higher monetary policy intervention, and reduced the benchmark policy rate by 25 basis points (bps) on Thursday. The repo rate at which banks borrow from the central bank now stands at 6.25 per cent from 6.5 per cent.
RBI's Monetary Policy Committee (MPC), the designated inflation nutter, also changed its stance to neutral allowing itself more headroom to either hike or cut rates in the near future.
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.
The reverse repo rate stands adjusted to 6 per cent, while the marginal standing facility (MSF) rate and the Bank Rate to 6.5 per cent.
These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of 2 per cent up or down, while supporting growth, the MPC said in a statement.
Markets, which were trading 100 points higher ahead of the policy statement are likely to cheer the move but could end up with mixed performance by end of the day considering that outcome of 200 companies that are slated to announce results Thursday.
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.
In the same breath, GDP growth for FY20 is projected at 7.4 per cent – in the range of 7.2-7.4 per cent in H1, and 7.5 per cent in Q3 – with risks evenly balanced. The CSO has estimated GDP growth at 7.2 per cent for 2018-19.
The committee though flagged external headwinds including trade tensions, and crude oil prices, which though appear well-behaved currently. Besides, it acknowledged domestic aggregate bank credit and overall financial flows to the commercial sector as robust, but yet to be broad-based. Oil prices and the lagged impact of the recent depreciation of the Indian rupee could be a drag on net exports while slowing global demand could pose headwinds.