RBI May Change Stance To "Neutral" In Shaktikanta Das's First Review

RBI interest rate,repo rate,GDP

RBI interest rate,repo rate,GDP

The repo rate is reduced by 25 basis points from 6.5 per cent to 6.25 per cent with immediate effect. Today's statement from the central bank will mark the first under Governor Shaktikanta Das, who took office almost a week after the last policy meet on December 5 by his predecessor Urjit Patel.

In the first policy review under Governor Shaktikanta Das, the six-member Monetary Policy Committee voted 4:2 in favour of the rate cut, while the decision to change policy stance was unanimous.

Das, in his maiden monetary policy review, has moved away from the usual practice of announcement 2:30 pm. This was the first MPC meeting under Das, who took over from Urjit Patel.

Under Patel, the RBI raised interest rates twice previous year and stuck to a "calibrated tightening" stance in December.

It has revised downwards the path of retail inflation to 2.8 per cent in the fourth quarter of the fiscal, 3.2-3.4 per cent in the first half of 2019-20 and 3.9 per cent in the third quarter of 2019-20, with risks broadly balanced around the central trajectory.

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The rate cut is in consonance of achieving the medium-term objective of maintaining inflation at the 4 percent level while supporting growth, it said. However, a number of economists have pointed to the fact that the MPC now has a legal mandate to target headline inflation and not core inflation. Industrial output growth, as measured by the Index of Industrial Production, fell to a 17 month low in November.

Automobiles sales - a key indicator of demand both in rural and urban India - are sluggish with consumption yet to recover from tight liquidity conditions spawned by a default at one of India's largest shadow banks.

The case for easier monetary policy has been strengthened due to the decline in inflation. The stimulus may be inflationary, and is reason enough for the central bank to defer any monetary easing, according to some economists. The panel also made a decision to change the monetary policy stance from "calibrated tightening" to "neutral".

The MPC also changed the policy stance to "neutral" from "calibrated tightening".

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