Shaktikanta das who is serving as 25th RBI Governor has announced a 25 bps rate cut in fourth bi-monthly repo rate to 5.15 %, it is the fifth straight interest rate cut. The 6 members MPC is scheduled to announce the fourth bi-monthly monetary policy for 2019-20. For the FY 20 GDP growth target set to 6.1% from 6.9% expected earlier. Reverse repo rate is adjusted to 4.9% and bank rate stances at 5.4%. All the 6 members voted in favor of rate cut.
RBI said that its September 2019 round of inflation anticipations assessment directs that households anticipate inflation to surge by 40 basis points over a 3-month ahead horizon and 20 basis points over a one-year ahead horizon. RBI Governor Shaktikanta Das said the macroeconomic performance of major emerging market economies was weighed down by a weakening global environment in Q3.
He said that "If rains are normal, there will be no shocks" and the CPI inflation target remained at 3.5% to 4 %. A fall in the real GDP growth in Q2 has been followed by weaker demand in rural and urban demand and it will remain weakened. RBI said that its September 2019 round of inflation anticipations assessment directs that households anticipate inflation to rise by 40 basis points over a 3-month ahead horizon and 20 basis points over a one-year ahead horizon.
Shaktikanta Das says that agriculture in India is well-positioned to lead a recovery in domestic demand. He pointed on some points in the conference.
Prospects of Rabi season have brightened. Agriculture in India well-positioned to lead a recovery in domestic demand. Manufacturing & Construction sector activities looked better in August. Liquidity remained in surplus during August & September 2019 despite the expansion of currency in circulation and forex operations by RBI draining liquidity from the system. Global Central Banks have been more accommodative.
RBI governor Shaktikanta Das says that several measures announced by the government over the last two months are anticipated to recover sentiment and spur domestic demand, particularly private consumption.
Shaktikanta Das says that: The RBI will extend the collateralized liquidity support round the clock, this is currently available till 7.45 pm on NEFT working days. And NEFT to be available 24 hours. Besides, he said to increase digitization in Tier III to Tier VI centers, RBI will create an 'Acceptance Development Fund' (ADF). RBI governor says that they will agree on domestic banks to liberally offer foreign exchange prices to non-residents at all times, out of their Indian books, either by a domestic sales team or through their overseas branches.
Shaktikanta Das says The RBI has no motive to distrust the promise of the government to obey to the fiscal deficit number. Moreover, he says "The RBI will continue with an accommodative stance as long as it is necessary to revive growth,”. He denied giving a statement on the minimum acceptable rate on the repo rate.
Shaktikanta Das said, Country's banking system is sound & stable, there is no need for unnecessary panic, talking about the PMC Bank crisis, the RBI governor said, "One incident should not be used to generalize the cooperative banking system." As soon as the PMC Bank issue came to RBI notice, the banking regulator has acted swiftly. He said that prompt corrective action is just a corrective measure and that is how it should be seen. "Every such incident (like the PMC Bank case) is an experience and we will have a fresh look at the regulatory framework (for cooperative banks)," said the RBI governor. He said that if any change is needed, the RBI talk to the government.
RBI governor said External benchmark requirement has been introduced for better transmission and government announced a slew of measures including corporate tax rate cut to revive the economy.
Shaktikanta Das said that the RBI has cut the repo rate by 135 basis points so far this year. And said "Today's 25 bps rate cut should be seen in the backdrop of the 110 bps cut already done this year,"
- Major Index erases gains after rate cut announcement
The rupee and bond prices fell after the monetary policy committee of the Reserve Bank of India cut repo rates by 25 basis points to 5.15 percent today. And market index turned negative. Bank nifty and Nifty almost slashed by 350 points and 70 points respectively after MPC cuts rates.