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RBI cut the repo rate by a spectacular 50 bps to 6.75 percent on Tuesday in a bigger-than-expected move. "I don't think we have been excessively aggressive," RBI Governor Raghuram Rajan said in an attempt to downplay the magnitude of the change. This was also the biggest rate move taken by Rajan since he took the helm in September 2013. All his previous moves, up or down, had been by a magnitude of 25 bps. Here are 5 impact points of the new policy: (PTI)
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1. With inflation running at record lows, the RBI repo rate cut could help pull an economy up that is in danger of slowing down. (AP)
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2. Repo rate cut reflects confidence in an economy expected to more than weather the storm once US interest rates are raised for the first time in nearly a decade.
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3. The repo rate cut will shift the focus to the PM Narendra Modi government that has struggled to get its reform policies past Parliament and away from the RBI. The NDA government can no longer point at RBI as a hurdle to progress. (PTI)
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4. By lowering its own economic growth forecast for the fiscal year to 7.4 percent from 7.6 percent previously, the RBI has ramped-up pressure on the Modi government towards getting the administrative set up running, which has been belaboured for continuing the business-as-usual habits prevalent under the UPA govt. (PTI)
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5. Cutting interest rates during the monsoon season, running from mid-June through September, is unusual for the RBI and it signals the cbank is not really defensive about food price pressures – a clear U-turn as drought has affected agriculture this year. This can have a huge knock-on effect on future monetary policy reviews. (Reuters)
