RBI seen changing its stance, but may hold rates

Home auto loans set to be cheaper as RBI Governor Shaktikanta Das cuts interest rates by 0.25

The Reserve Bank of India's monetary policy committee on Thursday reduced the policy interest rate by 25 basis points to 6.25 %, a move that could lead to banks reducing lending rates for consumer and home loans.

Consequently, the reverse repo rate under the LAF stands adjusted to 6.0 per cent, and the marginal standing facility rate and the Bank Rate to 6.5 per cent.

The MPC also changed its stance to "neutral" from the "calibrated tightening" adopted in October meet past year.

"Investment activity is recovering but supported mainly by public spending on infrastructure". This is the first rate cut announced by the MPC since August 2017. However, all the members agreed on changing the policy stance to neutral. "It also signals a commitment to a symmetric policy to achieve its 4 per cent inflation target - a departure from the RBI's previous one-sided, conservative stance that aimed to keep inflation below the target."- Abhishek Gupta, Bloomberg Economics.

Das also downplayed the risk of inflation rising due to the forecast of fiscal slippage in last week's budget, and said the MPC will only look at the headline inflation number and ignore core inflation that has proven sticky.

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Inflation slowed to an 18-month low of 2.2 percent in December, remaining well below the Reserve Bank of India's medium-term target of 4 per cent.

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".

Emboldened by a slowdown in inflation, the MPC under the new governor showed more concern about economic growth risks, paving the way for more rate cuts.

The MPC chose to cut repo rate in a 4-2 split and unanimously change its stance from calibrated tightening to neutral. He, however, added that the RBI's track record in projection inflation accurately is no different from the experience of global central banks, who have also seen inflation veer off the expected track in recent years.

The six-member monetary policy committee, headed by RBI Governor Shaktikanta Das, changed the policy stance to "neutral" from "calibrated tightening". Earlier, when Urjit Patel took charge as the RBI Governor, he shifted from the usual practice of announcement at 11 am and presented the fourth bi-monthly (his maiden) monetary policy review at 2:30 pm after the MPC meeting. It expects RBI to deliver another 25 bps rate cut in April.

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