Number of Indian Americans in elected offices not reflective of their population: Kamala Harris
New Delhi, August 2
The Reserve Bank on Wednesday slashed benchmark lending rate from 6.25 per cent to 6 per cent citing reduction in upside risk to inflation, a move that will lower EMIs for home, auto and personal loans.
This is the first rate cut since October 2016 and the interest rate is now at 6-year low.
In line with record low retail inflation, the RBI Governor headed Monetary Policy Committee (MPC) cut policy repo rate by 25 basis points to 6 per cent and the reverse repo by similar proportion to 5.75 per cent.
The MPC has also decided to keep the policy stance neutral and to watch incoming data with a view to keeping headline inflation close to 4 per cent.
It stressed on urgent need to reinvigorate private investments, clear infrastructure bottlenecks and provide a major thrust to the Pradhan Mantri Awas Yojana.
The RBI said it is working in close coordination with the government to resolve large stressed corporate borrowings and recapitalise public sector banks.
Governor Urjit Pate exhorted banks to transmit rate cut to borrowers as there was still room for it.
For today’s cut, five of the six MPC members, including Patel, voted in favour and called on the government to speed up projects as there is an “urgent need” to boost private investment.
Inflation, according to RBI projections, would rise to 3.5-4.5 per cent between October 2017 and March 2018. The central bank retained its forecast of 7.3 per cent growth in gross value added in the current fiscal.
“The MPC observed that while inflation has fallen to a historic low, a conclusive segregation of transitory and structural factors driving the disinflation is still elusive,” the central bank said in the third bi-monthly monetary policy statement of 2017-18.
While continuing to monitor movements in inflation to ascertain if recent soft readings are transient or if a more durable disinflation was underway, RBI said outlook for agriculture appears robust but underlying growth impulses in industry and services are weakening.
The government was quick to welcome the rate cut.
Economic Affairs Secretary Subhash Chandra Garg said: “We welcome the cut in the repo rate as an important step necessary to converge toward the appropriate real monetary conditions for sustained growth consistent with India’s potential and for stable, moderate inflation.”
“The decision of the MPC is consistent with a neutral stance of monetary policy 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,” Patel said after the third monetary policy review of the current fiscal.
However, the stock market, which had largely factored in the cut, declined. While the BSE index Sensex slipped from record high to end 98.43 points lower at 32,476.74, NSE’s Nifty fell 33.15 points to 10,081.50.
On the rate of price rise, Patel said: “The MPC observed that while inflation has fallen to a historic low, a conclusive segregation of transitory and structural factors driving the disinflation is still elusive.”
Noting that the trajectory of inflation in the baseline projection is expected to rise from current lows, he said the MPC decided to keep the policy stance neutral and to watch incoming data.
The MPC remains focused on its commitment to keep headline inflation close to 4 per cent on a durable basis, he added.
It has also stressed on an urgent need to reinvigorate private investments, clear infrastructure bottlenecks and provide a major thrust to the PMAY for affordable housing.
RBI said it is working in close coordination with the government to resolve large stressed corporate borrowings and recapitalise public sector banks.
The banking sector in India is reeling under Rs 8 lakh crore of non-performing assets (NPAs) or bad loans, of which PSU banks alone account for over Rs 6 lakh crore.
Patel noted that the MPC will continue monitoring movements in inflation to ascertain if recent soft readings are transient or if a more durable disinflation is underway.
“In its assessment of real activity, the MPC noted that while the outlook for agriculture appears robust, underlying growth impulses in industry and services are weakening, given corporate deleveraging and the retrenchment of investment demand,” he said.
He further said there is a scope for banks to cut rates further, especially for those sectors which have not benefited in the past rate cuts.
RBI also said it is not fully satisfied with the MCLR system and is studying that can move to a market-linked benchmark.
Four MPC members — RBI Governor, Deputy Governor Viral V Acharya, Chetan Ghate and Pami Dua were in favour of the monetary policy decision.
However, another member Ravindra H Dholakia voted for a policy rate reduction of 50 basis points, while RBI executive director Michael Debabrata Patra voted for status quo.
India Inc welcomed the rate cut with a rider that a steeper rate cut would have spurred investment and growth.
Commenting on RBI policy action, HDFC Chairman Deepak Parekh said: “I think it is a good move to the economy. I think it was expected and the MPC has taken a right decision.”
