Monetary Policy: RBI cuts key policy rate to 6.25%

Posted - February 08 2019 04:10

Monetary Policy: RBI cuts key policy rate to 6.25%

Monetary Policy Committee cut the repo rate by a quarter of a percentage point to 6.25 percent. Even then, the first MPC meeting presided by new governor Shaktikanta Das was keenly watched by policy watchers for various reasons.

The six-member Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) made a decision to reduce the key policy rate or the repo rate by 25 bps to 6.25% in the last bimonthly policy review of 2018-19 while changing the policy stance to "neutral" from "calibrated tightening".

Deputy Governor Viral Acharya and another MPC member, Chetan Ghate, voted for status quo in interest rates, while Das and three others voted for a cut in interest rates. However, all the members agreed on changing the policy stance to neutral.

The Reserve Bank of India Thursday projected an economic growth rate of 7.4 per cent for the next fiscal, up from 7.2 per cent estimated for the current fiscal by Central Statistics Office (CSO). As headline inflation is way below target, MPC could have given 50 bps relaxation to industry.

"The 25 bps reduction in repo rate taken together with the shift in RBI's stance from "calibrated tightening" to a "neutral approach", would go a long way in lifting sentiment among businesses", CII President Rakesh Bharti Mittal said.

RBI Governor Shaktikanta Das said, "we are constantly & continuously monitoring the liquidity situation and based on the requirement we will ensure that there is no liquidity scarcity". Inflation estimates have been revised very sharply lower by the central bank, according to a Livemint report. While RBI's mandate is price stability (targeting inflation), the RBI Act also says that it needs to do so "keeping in mind the objective of growth", Das said then to make his point. Finance Minister Piyush Goyal rolled out the government's last budget ahead of this year's national elections, announcing no tax on income up to Rs 5 lakh, a Rs 75,000 crore assured income scheme for small farmers and a mega pension scheme for workers in the unorganised sector.

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