Monetary Policy: RBI cuts key policy rate to 6.25%

RBI Policy MPC Cuts Benchmark Rate RBI Governor Emphasises Growth

"On the basis of an assessment of the current and evolving macroeconomic situation at its meeting today, the Monetary Policy Committee (MPC) chose to reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 6.50% to 6.25% with immediate effect", the RBI said in a statement.

The RBI concluded that India needs some higher monetary policy intervention, and reduced the benchmark policy rate by 25 basis points (bps) on Thursday.

Deputy Governor Viral Acharya and another MPC member, Chetan Ghate, voted for status quo in interest rates, while Das and three others voted for a cut in interest rates. The 25 bps rate cut has come after a period of one-and-a-half years (the last one was in August 2017). 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.

Oil rises 1 percent on signs of tightening global oil supply
Both U.S. crude oil imports and exports increased during the week ending February 1, the U.S. Senior US and Chinese officials are poised to start another round of trade talks next week.

The repo rate is the rate at which the Reserve Bank lends short-term money to the banks, while the reserve repo rate is the rate at which the central bank borrows money from commercial banks. Policymakers predict inflation will rise this year but remain within the RBI's target range. Most polled respondents expected the central bank to only change the stance, to neutral.

Speculations were there that the six-member MPC, headed by RBI Governor Shaktikanta Das, will announce repo rate cut to ease pressure on banks.

The year over year change in consumer price inflation dropped from 3.4 percent in October to 2.2 percent in December, its lowest level in eighteen months. In its budget on Feb 1, the government doled out cash to farmers and tax cuts to middle-class families, at the cost of a wider fiscal deficit and larger borrowing. The Financial Sector regulator, also says the Country's economic growth forecast at 6.3%, largely supported by public investments, credit growth and improved agricultural output is feasible.

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