The Reserve Bank of India cut key policy rates by 25 bps to 6.25% from the current 6.50%.
Consumer inflation reduced steeply to 5.0% in August from 6.1% from July on easing food prices, which prompted RBI to cut rates in the October 4 policy. Inflation is further expected to ease as the good monsoon leads more production in the coming months.
The reverse repo rate under the LAF stands adjusted to 5.75%, and the marginal standing facility (MSF) rate and the Bank Rate to 6.75%.”
This was the first RBI policy under the guidance of Urjit Patel, the new central bank governor and with the Monetary Policy Committee setting the rates.
RBI Governor Urjit Patel said that the decision to cut rates in the fourth monetary policy of the fiscal was taken amid growing uncertainties from the overseas, where “weak global demand is actually going to drag down trade volumes.”
Patel said that the International Monetary Fund (IMF) is likely to further cut global growth estimate in its upcoming meet. “I will be surprised if it doesn’t,” he said.
Patel also said that uncertainties from the central banks of the world is impacting emerging markets, and said that the outcome of the US elections would be important too.
The key repo rate — or the rate at which banks borrow from the RBI — was at 6.50% at the end of former RBI Governor Raghuram Rajan’s tenure.
He cut rates by 150 basis points between January 2015 and August 2016, his last monetary policy, hoping that banks would transmit the rate cut benefit in terms of cheaper loans and reduced ‘floating’ EMIs.
This was the fourth monetary policy of the fiscal and the first by the new RBI Governor Urjit Patel. The 4th bi-monthly monetary policy review was also a first for two other things — it was the first by the newly-constituted Monetary Policy Committee and also the first to be announced at 2:30 pm, followed by an interaction of the RBI Guv and the deputy governors with the press.
The power to set the interest rates now lies with the six-member MPC which has three government-appointed members and the other three were picked by the central bank. The MPC also takes away the power of the RBI governor to veto interest rates.
According to PTI alert, all six members voted in favour of a rate cut.
At the time, benchmark 30-share BSE Sensex was trading at 28,308.51, up 65.22 points or 0.23% from previous close.
