RBI Monetary Policy HIGHLIGHTS: Repo rate cut to 9-year low as demand slowdown, liquidity woes weigh

By: |
Updated:Jun 06, 2019 2:48:43 pm

RBI Monetary Policy June 2019: The six-member RBI’s monetary policy committee (MPC) led by governor Shaktikanta Das cut the repo rate to 9-year low as demand slowdown, liquidity crunch weighed on central bank’s mind.

RBI monetary policyMonetary PolicyThe committee also changed policy stance to accommodative from neutral.

RBI Monetary Policy June 2019: The six-member RBI’s monetary policy committee (MPC) led by governor Shaktikanta Das cut the repo rate to 9-year low as demand slowdown, liquidity crunch weighed on central bank’s mind. The committee cut repo rate by 25 bps to 5.75 per cent and also changed policy stance to accommodative from neutral. The reverse repo rate under the LAF stands adjusted to 5.50 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 6.0 per cent. This is the third meeting under RBI governor Shaktikanta Das, who took charge in December 2018, and the first meeting of FY20. In April, the MPC had cut repo rate by 25 basis points to 6 per cent. The decision would be announced at 11:45 pm today.

Also read: RBI Monetary Policy eased further: Repo rate cut to lowest in nine years as slow economic growth hurts

The meeting comes at a time when India’s Q4FY19 GDP growth rate reduced to 5.8 per cent, a five year low under the Modi government. Even though inflation has remained very much under control, the liquidity had been in deficit mode for the past few months. The RBI is expected to come up with more measures to tackle the issue. The RBI has already cut rates two times this year.

Live Blog

Highlights

    14:48 (IST)06 Jun 2019
    Rate cut is mild inflation tamer

    "A 25 bp rate cut falls short of what is required with a delayed and expected insufficient monsoon. This cut is a mild inflation tamer but not the big growth driving rate cut that the economy needs. Easing into growth through stances is not optimal and an abrupt and decisive rate cut would have pushed the market forward significantly. A substantial rate cut has been overdue for two policy sessions. We hope the accomodative policy stance will deliver that the next time around", Ranjan Chakravarty, Product Strategy, MSE, said.

    14:44 (IST)06 Jun 2019
    RBI policy announcement not as expected by stock markets

    “The RBI policy announcement is exactly on the same lines as expected by most of the market participants. The repo rate cut of 0.25% and the change of stance from neutral to accommodative is key to supporting the sagging economic growth. The projected growth has been lowered to 7%. The policy also has broad indications of more action on the liquidity front from the RBI in the coming days. This also confirms the commitment of the central bank to better transmission of the rate cut effects through liquidity”, Joseph Thomas, Head Research- Emkay Wealth Management said.

    13:47 (IST)06 Jun 2019
    Resolution disappointed on rate cut transmission

    The resolution made its disappointment clear at the transmission of rate cuts, saying the weighted average lending rate has gone down by only 0.21 per cent, while the same for older loans has increased 0.04 per cent, as against policy rate cuts of 0.50 percentage point.

    13:39 (IST)06 Jun 2019
    DHFL default: RBI to enusre financial stability

    The central bank is closely monitoring the developments in the NBFC sector and housing finance companies and will ensure that financial stability is maintained, governor Shaktikanta Das said Thursday. "We have been closely monitoring the performance and developments in the NBFC and HFC sectors," Das told reporters said.

    13:35 (IST)06 Jun 2019
    New NPA resolution norms in 3 to 4 days, Shaktikanta Das

    The Reserve Bank will issue a revised circular on bad loan recognition within the next three-four days, replacing the February 12 circular that was struck down by the apex court. "The revised circular on February 12 on NPA classification will be issued very shortly, in three to four days," Das told reporters.

    13:30 (IST)06 Jun 2019
    Rupee pares most early losses post RBI rate cut

    The rupee pared most of its early morning losses and was trading marginally down by 5 paise at 69.31 against the American currency, after the Reserve Bank of India cut its repo rate by 0.25 per cent Thursday.

    13:21 (IST)06 Jun 2019
    Effective transmission and adequate liquidity remain key challenges

    "RBI carried out the third successive rate cut. Low inflation and subdued growth are the drivers of the move. Yet, the real concern is lack of transmission of rate cuts into effective lending rate. Liquidity conditions also remain tight for large part of the corporate sector. Effective transmission and adequate liquidity remain key challenges." on the RBI Monetary Policy, said Sujan Hajra, Chief Economist and Executive Director, Anand Rathi Shares & Stock Brokers.

    13:11 (IST)06 Jun 2019
    RBI move on RTGS, NEFT

    In order to provide an impetus to digital funds movement, RBI in its Statement on Developmental and Regulatory Policies has stated that it has decided to do away with the charges levied by it for transactions processed in the RTGS and NEFT systems.

    Read more: Good News! RBI scraps RTGS, NEFT charges for online fund transfers

    13:08 (IST)06 Jun 2019
    Stock markets had already factored in rate cut

    "While the rate cut of 25 basis points was in line with our expectation, concerns over growth and challenges regarding liquidity continue to linger. The market is not necessarily cheering the rate cut as it had already factored in and something more was expected," Naveen Kulkarni, Head of Research, Reliance Securities.

    12:58 (IST)06 Jun 2019
    Stock markets crack after RBI Monetary Policy

    The benchmark BSE Sensex cracked over 300 points and the NSE Nifty dropped below the 12,000 level in afternoon session Thursday tracking losses in financial stocks after the Reserve Bank cut its key interest rates for the third time in a row. The 30-share index was trading 333.32 points, or 0.83 per cent, lower at 39,750.22, and the broader Nifty fell 114.35 points, or 0.95 per cent, to 11,907.30.

    12:56 (IST)06 Jun 2019
    Rate cut to induce liquidity amid slowdown concerns

    "The rate cut of 25bps was imperative to induce liquidity in the Downward spiral economy on the back of all indicators showing slowdown like the peak unemployment rate, shrinking GDP rates, nose-diving auto sales numbers, etc. Since the CPI was well under 2.5% and recent crude prices dip, a higher rate cut would have been more cheerful for the markets. The stance change from neutral to accommodative by RBI indicates the cognizance about the current fragile business environment and we expect further rate cuts in times to come. Rate cuts shall enable affordability in terms of home loans and thus lowered EMI, lower GST, tax rebate for income up to Rs6.5 lakhs (including section 80C) for the middle class as per as interim budget. All these shall give some sales impetus to real estate," Parth Mehta, Managing Director, Paradigm Realty said.

    12:50 (IST)06 Jun 2019
    Policy rate cut likely to provide respite to the real estate sector

    “The first rate cut in the newly elected government’s regime is certainly a welcome step, especially for the real estate sector. The benefit of lower policy rate in terms of better credit cost as well as higher liquidity will hopefully be transmitted further by banks to NBFCs as well as home buyers. Also, the change in policy stance from neutral to accommodative is a welcome shift as it lays ground for further rate cuts. The cash-crunched NBFCs will definitely benefit from inflow of capital which will in turn benefit developers as well as home-buyers. NBFCs have been facing a liquidity crisis and this has negatively impacted their loans to real estate, including construction finance. Besides capital infusion into this important financier segment, this rate cut will also improve the home-buyers affordability and stimulate housing demand at this critical juncture," Shishir Baijal, Chairman & Managing Director, Knight Frank India said.

    12:47 (IST)06 Jun 2019
    Debt markets to take stance change move positively

    "RBI reduced repo rate by 25 bps as expected. The change in stance to ‘accommodative’ was a bit of a surprise. Debt markets will take this as a significant positive move though most of the rate cut cycle is probably over. The tone of the RBI policy was dovish and highlights the concerns on growth. We maintain our call for another 25 bps rate cut in August factoring in the benign inflation trajectory and the growing concerns on growth. However, transmission of the rate cuts will be key and the RBI should aim to maintain the liquidity, at least, at neutral over the next few months, said Suvodeep Rakshit, Sr. Economist, Kotak Institutional Equities.

    12:45 (IST)06 Jun 2019
    Shift in stance welcome decision, says Elara Capital

    "Drawing comfort from consistent softness in inflation trajectory, MPC cut policy repo rate for the third time this year to support benign growth conditions. A shift in the stance to accommodative is welcome as it will pave way for transmission to lending rates, which so far have been inadequate. We expect MPC to cut rates by an additional 50 bps through the year while continuing to fine tune liquidity support through a combination of OMO purchases, forex swap and CRR cut," Garima Kapoor, Economist, Elara Capital said.

    12:43 (IST)06 Jun 2019
    RBI waives RTGS, NEFT charges to promote digital transactions

    RBI waived RTGS and NEFT charges to promote digital transactions. It set up a panel to review ATM charges, fees levied by banks. It would soon issue draft guidelines for 'on tap' licensing of small finance banks by August. The central bank has flagged sharp slowdown in investments, moderation in private consumption growth as concern.

    12:39 (IST)06 Jun 2019
    Trade war impact on exports

    India's exports were unable to sustain the growth of 11.8 per cent observed in March 2019 and grew by 0.6 per cent in April 2019 dragged down by engineering goods, gems and jewellery, and leather products, RBI said. Tariff wars between the US and China has impacted global trade and and financial markets, it added.

    12:37 (IST)06 Jun 2019
    Expect the government to remain broadly fiscally prudent, RBI

    Expect the government to remain broadly fiscally prudent and revised February 12 circular on bad loans to be issued in next 3-4 days, says Shaktikanta Das.

    12:35 (IST)06 Jun 2019
    Nifty down after RBI Monetary Policy

    Indices extend the drop, Nifty now down more than 100 points, Nifty Bank sheds nearly 400 points after the RBI Monetary Policy.

    12:33 (IST)06 Jun 2019
    RBI to ensure adequate liquidity

    RBI will ensure there is adequate liquidity; committed to ensure robust, well-functioning NBFC sector, says RBI Governor, Shaktikanta Das said.

    12:20 (IST)06 Jun 2019
    Change in stance to ‘accommodative’ was bit of a surprise

    "RBI reduced repo rate by 25 bps as expected. The change in stance to ‘accommodative’ was a bit of a surprise. Debt markets will take this as a significant positive move though most of the rate cut cycle is probably over. The tone of the RBI policy was dovish and highlights the concerns on growth. We maintain our call for another 25 bps rate cut in August factoring in the benign inflation trajectory and the growing concerns on growth. However, transmission of the rate cuts will be key and the RBI should aim to maintain the liquidity, at least, at neutral over the next few months," Suvodeep Rakshit, Sr. Economist, Kotak Institutional Equities said.

    12:14 (IST)06 Jun 2019
    RBI talks about various risks to economy

    Risks around the baseline inflation trajectory emanate from uncertainties relating to the monsoon, unseasonal spikes in vegetable prices, international fuel prices and their pass-through to domestic prices, geo-political tensions, financial market volatility and the fiscal scenario, the RBI said.

    12:12 (IST)06 Jun 2019
    RBI's GDP growth outlook

    "Taking into consideration the above factors and the impact of recent policy rate cuts, GDP growth for 2019-20 is revised downwards from 7.2 per cent in the April policy to 7.0 per cent –in the range of 6.4-6.7 per cent for H1:2019-20 and 7.2-7.5 per cent for H2 –with risks evenly balanced," the RBI said.

    12:09 (IST)06 Jun 2019
    Minutes of meeting to be published on June 20

    All members of the MPC (Dr. Chetan Ghate, Dr. Pami Dua, Dr. Ravindra H. Dholakia, Dr. Michael Debabrata Patra, Dr. Viral V. Acharya and Shri Shaktikanta Das) unanimously decided to reduce the policy repo rate by 25 basis and change the stance of monetary policy from neutral to accommodative. The minutes of the MPC’s meeting will be published by June 20, 2019. The next meeting of the MPC is scheduled during August 5 to 7, 2019.

    12:07 (IST)06 Jun 2019
    MPC on growth slowdown

    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. A sharp slowdown in investment activity along with a continuing moderation in private consumption growth is a matter of concern.

    12:05 (IST)06 Jun 2019
    RBI on inflation

    Risks around the baseline inflation trajectory emanate from uncertainties relating to the monsoon, unseasonal spikes in vegetable prices, international fuel prices and their pass-through to domestic prices, geo-political tensions, financial market volatility and the fiscal scenario, the RBI said.

    12:04 (IST)06 Jun 2019
    RBI MPC outlook

    In the bi-monthly monetary policy resolution of April 2019, CPI inflation was projected at 2.4 per cent for Q4:2018-19, 2.9-3.0 per cent for H1:2019-20 and 3.5-3.8 per cent for H2:2019-20, with risks broadly balanced. The headline inflation outcome in Q4 at 2.5 per cent was largely in alignment with the April policy projections, the RBI said.

    12:02 (IST)06 Jun 2019
    Growth, inflation focus areas

    These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth, the RBI also said in the statement.

    12:01 (IST)06 Jun 2019
    Unanimous vote on rate cut, policy change

    MPC voted unanimously for rate cut by 25 bps and stance change.

    11:58 (IST)06 Jun 2019
    CRR remains unchanged

    The CRR — Cash Reserve Ratio — is kept unchanged. The RBI MPC voted unanimously by 6-0 in favour of a 25 basis points policy rate cut. Additionally, the policy stance has also been eased to ‘Accomodative’ from ‘Neutral’. “These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth,” RBI said in its monetary and credit policy statement.

    11:57 (IST)06 Jun 2019
    Reverse repo at 5.50%

    The reverse repo rate under the LAF stands adjusted to 5.50 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 6.0 per cent.

    Read more: RBI Monetary Policy eased further: Repo rate cut to lowest in nine years as slow economic growth hurts

     
    11:44 (IST)06 Jun 2019
    RBI Monetary Policy at 11:45 am

    The resolution of the MPC will be placed on the RBI website at 11.45 AM on June 6, 2019, the RBI had said in its release.

    11:31 (IST)06 Jun 2019
    RBI's liquidity measures

    Amid ongoing liquidity crunch in the market, the experts may closely watch what kind of measures RBI announces in its policy, even though it has been taking steps to ease liquidity by swapping dollars with rupee and buying government bonds.

    11:27 (IST)06 Jun 2019
    MCLR rate of banks on upward trajectory

    Even though the RBI has reduced its repo rate—the rate at which it lends to the banks, in its last two reviews, the MCLR rate of banks has increased from 10.38% in January to 10.42% in April 2019.

    11:16 (IST)06 Jun 2019
    What Reuters' poll says on rate cut expectations

    According to a Reuters poll of 66 economists, two-thirds have predicted that the RBI will cut its repo rate by 25 basis points, bringing it to 5.75% - the lowest since July 2010. It is then expected to keep policy on hold at least until the end of next year.

    11:04 (IST)06 Jun 2019
    Sensex, Nifty ahead of RBI Monetary Policy for June 2019

    BSE Sensex fell 86 points, or 0.2 per cent, to 39,997, with YES Bank, State Bank of India, Mahindra & Mahindra, IndusInd Bank, and Hero MotoCorp among the top losers. Nifty50 dropped 50 points, or 0.4 per cent, to 11,972, at the time of reporting.

    10:57 (IST)06 Jun 2019
    Bloomberg poll expects 25 bps cut today

    The six-member monetary policy committee led by Governor Shaktikanta Das is expected to cut the repurchase rate by 25 basis points to 5.75 per cent today, 31 of 43 economists surveyed by Bloomberg said.

    10:52 (IST)06 Jun 2019
    Rate cut of 35 bps possible

    Even as most economists are expecting rate cut by 25 bps, Bank of America Merrill Lynch economist Indranil Sen Gupta say that the RBI will lower its benchmark interest rate by 35 basis points.

    10:47 (IST)06 Jun 2019
    RBI policy stance in focus

    Following April rate cut,the RBI had retained its "neutral" stance. However, the markets this time expect a change in this stance to "accommodative" or "dovish", especially after the muted GDP numbers.

    10:42 (IST)06 Jun 2019
    RBI's interaction with researcher, analysts

    The top management of the Reserve Bank of India will interact with researchers/analysts through teleconference between 03.00 pm and 03.45 pm on Thursday, June 06, 2019, after the announcement of the Resolution of the Monetary Policy Committee of the Reserve Bank of India under the Second Bi-monthly Monetary Policy Statement for 2019-20.

    10:39 (IST)06 Jun 2019
    RBI's interaction with media

    The top management of the Reserve Bank of India will interact with the media in Mumbai after the announcement of the Resolution of the Monetary Policy Committee of the Reserve Bank of India under the Second Bi-monthly Monetary Policy Statement for 2019-20 on Thursday, June 06, 2019. The interaction will be held from 12.00 noon to 12.45 pm. The media conference will also be live webcast on www.rbi.org.in.