RBI monetary policy HIGHLIGHTS: Shaktikanta Das throws in a surprise, cuts policy rates by 35 bps; repo rate now at 5.40%

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Updated:Aug 07, 2019 6:04:52 pm

RBI Monetary Policy August 2019 HIGHLIGHTS: The Monetary Policy Committee of the Reserve Bank of India (RBI) cut the repo rate by 35 bps to 5.40 per cent third bi-monthly Monetary Policy Statement for 2019-20 on Wednesday 2019.

RBI Monetary Policy Live, RBI Monetary Policy TimingRBI Monetary policy: The reverse repo rate under the LAF stands revised to 5.15 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 5.65 per cent.

RBI Monetary Policy August 2019 HIGHLIGHTS: The Monetary Policy Committee of the Reserve Bank of India (RBI) cut the repo rate by 35 bps to 5.40 per cent third bi-monthly Monetary Policy Statement for 2019-20 on Wednesday 2019.  The reverse repo rate under the LAF stands revised to 5.15 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 5.65 per cent. This is the fourth rate cut by the RBI so far in this calendar year. The RBI maintained its policy stance as accommodative similar to the one in the last policy. With the US Federal Reserve already slashing rates, the probability of another rate cut in the calendar year had gained momentum. In the June policy, the MPC had revised its inflation forecast to 3-3.1 per cent for the first six months of FY20 and to 3.4-3.7 per cent for the second half.

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Highlights

    18:04 (IST)07 Aug 2019
    RBI cut on anticipated lines

    “The MPC’s verdict of fourth straight rate cut was on anticipated lines but the little extra i.e. 35bps was a pleasant surprise, as this would aid in addressing incumbent growth concerns by way of boosting aggregate demand and private investment. The Governor has also reaffirmed the importance of large NBFC’s in the system and has reassured to render the requisite support as required, which will be the key for rejuvenating the slowing economy. The focus of the Central Bank on spurring growth and addressing the NBFC issue will provide the much needed respite to the markets," said Jyoti Vaswani, Chief Investment Officer, Future Generali Life Insurance.

    15:16 (IST)07 Aug 2019
    RBI cut to boost growth

    “The fourth consecutive cut in repo rates show the urgency of the central bank to give impetus to economic growth. With a view to increase the credit flow to real estate, the RBI’s recognition of loans up to Rs. 20 lakhs as Priority Sector Lending would provide support to boost the affordable housing segment. We hope that the benefits are passed on to end -consumer for home loans by the banks, making it easier for them to make their purchase decisions," Kamal Khetan, Chairman and Managing Director, Sunteck Realty Limited said.

    15:12 (IST)07 Aug 2019
    RBI: Low demand pulls down the repo rate

    The primary indicators show a contraction in both urban and rural demand, leading the RBI to cut its annual GDP growth forecast to 6.9% for the current financial year 2019-20, from 7% earlier.

    14:38 (IST)07 Aug 2019
    Das on sovereign bonds

    Das declined to voice RBI's views on the government idea of sovereign borrowing from abroad, saying it conveys its views internally at the highest level.On the crippled NBFC sector, he said the RBI endeavour is to ensure that none of the systematically important NBFCs fall by the wayside.

    14:15 (IST)07 Aug 2019
    Nothing sacred about multiples of 0.25% cut, says Das

    Addressing the media at the customary post-policy presser, Das said there is nothing sacred about multiples of 0.25 percent cuts and also made it clear that the rate call cut has not been taken on "gut feel" but on hard data. "Too much should not be read into it, it is judgement call which the MPC has taken," he said, adding that it was "prudent" to be accommodative.

    14:12 (IST)07 Aug 2019
    RBI rate cut to boost investor sentiment

    “The Reserve Bank of India’s decision of a cumulative rate cut for the fourth time in a row was to ease the situation of liquidity tightening in the system. The regulator has retained its accommodative stance, which indicates its willingness to remain flexible till the economic conditions improve. The uptick in gold prices with the rate cut announcement indicates the investors confidence in this traditional asset during uncertainties. The easing of liquidity situation and accelerating transmission of the rate cut to the end consumer will boost investment sentiments in commodities ahead of the festival season," Narinder Wadhwa, President Commodity Participants Association of India (CPAI).

    14:09 (IST)07 Aug 2019
    RBI’s decision of a 35 basis point rate cut is a welcome move

    "RBI’s decision of a 35 basis point rate cut is a welcome move. However, it is a surprising number because this is a departure from the norm of sticking to multiples of 25 for any rate revision. The markets did not immediately react, probably because the fundamentals for the economy still continue to be weak. The prediction of GDP growth accelerating to 7.4% by Q1 of the next financial year while the inflation figures remaining contained under 4% is a good news for long term investors," Puneet Maheshwari, Director at Upstox, said.

    14:06 (IST)07 Aug 2019
    MPC has delivered a properly calibrated rate cut

    "Following up from the Governor's message delivered to the World in Washington earlier this year, of calibrating rate cuts to India's needs instead of needlessly sticking to global convention, the MPC has delivered a properly calibrated rate cut. A 35 bp cut is exactly appropriate. 25 would have been too soft and 50 wasteful given the strong performance of the monsoon since the previous policy announcement. The market will definitely appreciate this," Ranjan Chakravarty- Product Strategy, MSE said.

    14:05 (IST)07 Aug 2019
    Finance Secretary appreciates rate cut

    Finance Secretary Rajiv Kumar says that the rate cut is a positive step and now it is banks' responsibility to further pass the benefit to customers.

    14:00 (IST)07 Aug 2019
    RBI on industrial production

    Industrial growth in India was pulled down by the slowdown in manufacturing and mining in May 2019. Looking at the use-based classification, production of capital goods and consumer durables has decelerated in the same period.

    13:44 (IST)07 Aug 2019
    RBI report: Indicators for investment and construction showed a slowdown

    Seen as an indicator of investment, import of capital goods slowed down in June. Even the construction activity indicators showed a slowdown, with contraction in cement production and slower growth in finished steel consumption in June. 

    13:41 (IST)07 Aug 2019
    Input cost pressure eased in May and June, says RBI

    Input cost stress from prices of agricultural and industrial raw materials continued to ease in May and June, the RBI credit policy report says. Manufacturing firms participating in the Reserve Bank’s industrial outlook survey expect input cost pressures to soften on account of lower raw material costs in the second quarter of 2019-20.

    13:36 (IST)07 Aug 2019
    RBI on inflation

    A sharp pick up in prices of meat and fish, pulses and vegetables rose the food inflation to 2.4 per cent in June. Inflation in liquefied petroleum gas (LPG) and subsidised kerosene prices, however, remained elevated. However, the prices of fruits, sugar, and fuel fell in June. Housing inflation remained unchanged over the last three months, whereas inflation in the health sub-group remained elevated. Inflation in personal care and effects edged up in June due to a resurgence in gold prices.

    13:34 (IST)07 Aug 2019
    RBI says large surplus in liquidity

    The RBI report says that the liquidity in the system was in large surplus in June-July 2019 mainly due to the return of currency to the banking system and drawdown of excess cash reserve ratio balances by the banks.

    13:30 (IST)07 Aug 2019
    RBI cuts GDP forecast by 0.1 per cent

    The Reserve Bank on Wednesday marginally reduced the GDP growth projection for 2019-20 to 6.9 per cent from 7 per cent forecast in the June policy. It has also underlined the need for addressing growth concerns by boosting aggregate demand.

    13:23 (IST)07 Aug 2019
    RBI’s business assessment index shows improvement

    The modest recovery in the profit margins of the surveyed firms led the RBI’s business assessment index for the first quarter to marginally improve

    13:14 (IST)07 Aug 2019
    RBI monetary policy committee report on rural and urban demand

    Sale of tractor and motorcycle is seen as an indicator of rural demand and the sale of passenger vehicles is considered one of the three major components of measuring the urban demand. Sales in both sectors have contracted, leaving the indicator for both urban and rural demand in red.

    13:04 (IST)07 Aug 2019
    Total cuts during 2019 add to 1.10 per cent

    The six-member Monetary Policy Committee (MPC) for the fourth consecutive times in a 4:2 vote resolved to cut the rates by 0.35 percent, taking the total cuts during 2019 to 1.10 per cent to a near record low of 5.40 percent.

    13:02 (IST)07 Aug 2019
    RBI rate is expected to stimulate growth

    “There has been a significant slowdown in the Indian economy. It was widely expected that RBI would cut rates to stimulate growth. Further global interest rates are going down as well and there is no immediate threat on the inflation front. We welcome this move and hope that rate transmission happens at a faster pace," Suraj Kaeley, Senior Advisor at FundsIndia.com said.

    12:59 (IST)07 Aug 2019
    RBI's rate cut welcome move, will add some impetus to the sluggish economy

    "What remains to be seen is how much of the repo rate cut is passed on to the consumers. As per RBI's policy statement, so far only 29 bps (out of a total of 110 bps of repo rate cut) has been cumulatively passed by the banks to its lending customers since the rate cut cycle began in Feb 2019. A larger pass through by banks, through cuts in their lending rates, will definitely revive private investment and boost sentiment. RBI also signaled that GDP growth will slow in FY20 from its earlier estimate of 7.0% to its revised estimate of 6.9% with a downside bias. Inflation for FY20 is expected to be stable around 3.4%, in line with its earlier forecasts. The overall tone of the monetary policy was one of concern on slowing growth, both on the global front and in the domestic economy. Given benign and under-control inflation, RBI's complete focus is now on reviving private sector investment and growth," Vijay Kuppa, Co-founder, Orowealth said.

    12:58 (IST)07 Aug 2019
    RBI rate cut clear signal of rising evidence of pervasive slowdown in economic growth

    "The unconventional 35 bps rate cut is a clear signal that the increasing evidence of a pervasive slowdown in economic growth has emerged as the MPC’s chief concern, given that it expects inflation to remain under its medium-term target. While the stance was maintained as accommodative and the tone of the outlook was dovish, we expect that incremental data will crucially guide the MPC’s decisions on additional rate cuts. The focus will now shift to improving transmission to Bank lending rates, with the systemic liquidity surplus in excess of 1% of NDTL. Several constraints to a pickup in economic growth, are unlikely to be removed by lower interest rates alone. Therefore, the Central Bank’s steps need to be supplemented with policy changes and reforms aimed at spurring activity in various sectors," said Aditi Nayar, Principal Economist, ICRA.

    12:54 (IST)07 Aug 2019
    No cartelisation by banks, says RBI Governor

    There is no cartelisation by banks in holding onto higher lending rates, said RBI Governor Shaktikanta Das.

    12:52 (IST)07 Aug 2019
    RBI has today demonstrated boldness by an unconventional reduction

    "RBI has today demonstrated boldness by an unconventional reduction of 0.35% showing an urgent need to take pressure off the bond markets and reduce the cost of capital in the economy to kickstart the investment cycle from the private sector. Increasing the bank exposure limit to a single NBFC from 15% to 20% is indeed RBI’s way of managing the current crises thereby addressing the liquidity squeeze caused by the NBFCs. The policy will genuinely percolate liquidity into the system giving immediate relief to the economy," Jimeet Modi, Founder & CEO, Samco Securities.

    12:50 (IST)07 Aug 2019
    Key highlights of RBI rate cut

    * RBI cuts key interest rate (repo) by an unusual 35 basis points (0.35 percentage points) to 5.40 per cent.* Reverse repo rate has been revised to 5.15 per cent* The marginal standing facility (MSF) rate and bank rate stands at 5.65 per cent* Maintains the accommodative policy stance* Cuts GDP forecast to 6.9 per cent for the current fiscal from 7 per cent in June policy* Keeps retail inflation forecast within target of 3.5-3.7 per cent for second half of 2019-20* Four members voted for cut of 35 basis points in rate; two members voted for 25 basis points rate cut* Boosting aggregate demand, private investment assume highest priority* Next monetary policy statement on October 4.

    12:48 (IST)07 Aug 2019
    35 bps is higher than consensus

    "The 35 bp rate cut is higher than the consensus and our expectation of a 25 bp rate cut. This clearly shows the RBI's concern about growth performance and outlook, and the urgency to take measures to revive growth,"Sujan Hajra, Chief Economist, Anand Rathi Securities said.

    12:46 (IST)07 Aug 2019
    RBI has been pre-emptive in terms of stance, rates

    RBI Governor says that the RBI has been pre-emptive in terms of its stance and the interest rates in India and the 50 bps cut would have been excessive in current circumstances.

    12:44 (IST)07 Aug 2019
    Banks have absorbed the past three rate cuts, says Shaktikanta Das

    RBI Governor Shaktikanta Das said that the financial markets have fully absorbed the past three rate cuts by RBI; wants banks to lower rates more going forward.

    12:42 (IST)07 Aug 2019
    Real GDP growth has been revised downwards by RBI

    "...real GDP growth for 2019-20 is revised downwards from 7 per cent in the June policy to 6.9 per cent -- in the range of 5.8-6.6 per cent for H1:2019-20 and 7.3-7.5 per cent for H2 -- with risks somewhat tilted to the downside; GDP growth for Q1:2020-21 is projected at 7.4 per cent," the RBI said.

    12:40 (IST)07 Aug 2019
    RBI rate cut to boost economy

    “While we were hoping 50 bps rate cut, the RBI has chosen unconventional cut of 35bps which is mildly positive for the market. However, RBI cutting its estimation of GDP growth rate below 7%, while widely expected, may not go down well with the market in short term. Overall this is an accommodative policy and in tune with other developed and emerging market trends. Certain other macro prudential measures like enhancement of credit limit to individual NBFC to 20% from 15% of a Bank's Tier I capital is good. The RBI has pointed out that while transmission of rates has occurred through money market, banks are yet to pass on the rate cuts to real economy. Overall, this is a good policy and should help improve liquidity, consumption and demand scenario in the economy albeit with a lag. We continue to expect further cuts from the RBI, as based on the current inflation projections, there is further room for RBI to cut rates and boost the economy,” Rajiv Singh, CEO, Karvy Stock Broking.

    12:38 (IST)07 Aug 2019
    Addressing growth concerns is highest priority, says Shaktikanta Das

    "Addressing growth concerns by boosting aggregate demand, especially private investment, assumes the highest priority at this juncture while remaining consistent with the inflation mandate," the RBI said in the third bi-monthly monetary policy review for the current financial year.

    12:36 (IST)07 Aug 2019
    RBI rate cut expected to bring EMIs down

    The fourth consecutive rate cut is expected to lower equated monthly instalments (EMIs) for home and auto buyers, and borrowing cost for corporate. Earlier this week, banks had assured Finance Minister Nirmala Sitharaman of passing on the benefits of RBI's rate cut to borrowers.

    12:35 (IST)07 Aug 2019
    Rate cut of 35 bps won’t boost housing much

    "The hard facts of declining consumption and a deepening economic slowdown in India are inescapable, and real estate has been severely impacted by them. To this gloomy backdrop, the RBI’s repo rate cut of 35 bps to 5.4% announced in the latest monetary policy is obviously welcome. This rate cut, the fourth consecutive cut since February 2019, is meant to boost consumer sentiments once commercial banks transmit the benefits to actual consumers. For real estate, a rate cut of 35 bps is however insufficient to significantly improve buyer sentiment in the mid-income segment, which still has a staggering unsold inventory of 2.17 lakh units in the top seven cities. On the other hand, demand for affordable housing, which accounted for 2.40 lakh unsold units in these cities, may see improvement as this highly budget-sensitive segment already has the benefit of other incentives," Anuj Puri, Chairman – ANAROCK Property Consultants said.

    12:32 (IST)07 Aug 2019
    Transmission to lending rates will likely remain weak unless there is a clear visibility of adequate liquidity, says Kotak

    “The RBI continued with the rate cut cycle but in a surprise change to the quantum, reduced repo rate by 35 bps. While this induces some uncertainty in market expectations of the quantum of rate changes, it provides the RBI MPC with a greater degree of flexibility in signalling their intent. The 35 bps rate cut should be seen as a signal that the RBI MPC is quite concerned with the growth outlook beyond the usual 25 bps rate cut in a business-as-usual scenario (even though it does not reflect in the revised FY2020 GDP growth estimate). The RBI MPC did not necessarily want to deliver a 50 bps rate cut and hence retains the scope to reduce rates further. With inflation expected to remain benign, and further downside to growth outlook, we see scope for 25-50 bps of further rate cuts through FY2020. Transmission to lending rates will likely remain weak unless there is a clear visibility of adequate liquidity sustaining over the medium term," Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities.

     

    12:30 (IST)07 Aug 2019
    Slowdown is cyclical, not structural

    RBI Governor Shaktikanta Das said that the ongoing slowdown is cyclical and not structural in nature.

    12:26 (IST)07 Aug 2019
    RBI is set ti cut rates in next policy

    "Welcome the 35 bp rate cut. Growth is likely to be revised down further from 6.9%. Given the well-anchored inflation, we believe that the RBI is set to cut rates in the next policy review in October. It could be 15/20 bps also. It is clear that reviving growth has received most attention," Shubhada Rao, Chief Ec onomist, Yes Bank.

    12:24 (IST)07 Aug 2019
    All members of the MPC voted unanimously

    All members of the MPC unanimously voted to reduce the policy repo rate and to maintain the accommodative stance of monetary policy.

    12:23 (IST)07 Aug 2019
    RBI rate cut and Sensex, Nifty

    The headline indices Sensex and Nifty reversed gains after the RBI cut repo rate by 35 bps while at the same time retaining accommodative stance. The Sensex is down 130 points to 36,847.09 while the Nifty is trading near the 10,900-mark.

    12:21 (IST)07 Aug 2019
    35 bps repo rate cut is balanced, says Shaktikanta Das

    RBI governor Shaktikanta Das said that 35 bps repo rate cut is balanced and a 25 bps reduction would have been inadequate.

    12:20 (IST)07 Aug 2019
    Real GDP growth revised downwards

    “Taking into consideration the above factors, real GDP growth for 2019-20 is revised downwards from 7.0 per cent in the June policy to 6.9 per cent – in the range of 5.8-6.6 per cent for H1:2019-20 and 7.3-7.5 per cent for H2– with risks somewhat tilted to the downside; GDP growth for Q1:2020-21 is projected at 7.4 per cent,” RBI said in the statement.

    12:16 (IST)07 Aug 2019
    RBI's CPI inflation forecast

    The CPI inflation forecast for Q2 FY20 seen at 3.1% & for 2H FY20 revised to 3.5-3.7% Vs 3.4-3.7% projected earlier