Published: Fri, June 07, 2019
Finance | By Kristine Clayton

Despite RBI rate cut, market looks for more growth impetus

Despite RBI rate cut, market looks for more growth impetus

Unlike in the past, when banking system liquidity was in deficit hampering the rate transmission, liquidity is in surplus for the week ended May 31, raising hopes of banks easing interest rates much faster than in the recent past. Repo rate is the rate at which the apex bank lends short-term money to commercial banks. But Thursday's reduction isn't a positive show of RBI's ultra-easy monetary policy regime, but points to an exceptionally weak economy, because of which the central bank was left with no alternative, but to parcel a 25 bps cut. The MPC cut rates by the same amount at its last two meetings. "Today's policy actions. give a clear signal that the RBI will continue with easy monetary conditions until it sees a definite improvement in growth-inflation mix".

All the six members of the Monetary Policy Committee voted unanimously for a rate cut and switching its policy stance to accommodative from neutral.RBI Governor Shaktikanta Das said the shift in the stance meant that an increase in interest rates is "off the table", PTI reported.Das wanted banks to expedite the transmission of the current reduction in rates as well as similar ones that happened in February and April.

Markets reacted to the rate cut and change in stance as the 10-year benchmark bond yield fell to 6.89% from 7% before the policy announcement, while the rupee strengthened to 69.28 per dollar from 69.36 earlier.

This was the first RBI meet after the new Narendra Modi Cabinet took charge and also the last one ahead of the Union Budget 2019, that will be present in July.

Many experts were expecting RBI to cut the rates by at least 25 basis points.

The RBI has revised GDP growth projection for the current financial year from 7.2% to 7%. The previous forecast had pegged a 2.9%-3.0% inflation during the period.

The Reserve Bank of India (RBI) Governor Shaktikanta Das listens to a question during a news conference in Mumbai, India, June 6, 2019.

"The MPC notes that growth impulses have weakened significantly as reflected in a further widening of the output gap compared to the April 2019 policy,"it said, adding that a sharp slowdown in investment activity along with a continuing moderation in private consumption growth is a matter of concern".

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