RBI Monetary Policy Review 2019: Governor Shaktikanta Das promises enough liquidity to all sectors after surprise rate cut

RBI Credit Policy: Reserve Bank of India's  monetary policy committee led by Governor Shaktikanta Das today surprised everyone with a cut in the repo rate.

RBI Monetary Policy Review 2019: Governor Shaktikanta Das promises enough liquidity to all sectors after surprise rate cut
RBI Monetary Policy 2019: The decision to change the monetary policy stance was unanimous, said the RBI. PTI

RBI Monetary Policy 2019: Reserve Bank of India's monetary policy committee led by Governor Shaktikanta Das today surprised everyone with a cut in the repo rate. RBI reduces the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 6.5 per cent to 6.25 per cent with immediate effect. The MPC also shifted its stance from 'calibrated tightening' to 'neutral' today on the expected lines. This is current fiscal's final bi-monthly monetary policy review. This will make home and auto loan cheaper.

The RBI cut its estimates on headline inflation which cooled off to a 18-month low of 2.2 per cent in December for the next year, and expects the number to come at 2.8 per cent in March quarter, 3.2-3.4 per cent in first half of next fiscal and 3.9 per cent in third quarter of FY20.

16.30 pm: The RBI under the leadership of Governor Shaktikanta Das has decided to cut the repo rate by 25bps for the first time in this financial year. With food prices softening and crude prices remaining stable internationally, the inflation seems well under control. Also, several budget proposals such as the increase in tax rebate are likely to raise disposable income. So, with an eye to increase private spending, the RBI has cut rates. This is great news for borrowers, especially those who are planning to invest in real estate. With the budget scrapping tax from notional rent on second self-occupied property and enabling the capital gains to be invested in two houses instead of one, the interest in the real estate has already gone up. This additional rate cut will further sweeten the deal. A 25bps rate cut on a 20-year home loan of Rs.40L at 8.85% will bring down the interest payable from Rs.45.4L to Rs.43.9L at 8.6%. That is a savings of Rs.1.5L over the tenor of the loan: Adhil Shetty, CEO, BankBazaar

16.00 pm: The 25 bps cut and other measures by the RBI to boost the liquidity in the system is a pleasant move. We expect it will support the economy’s investment demand. With the country's economy picking up, we see an adequate opportunity in lending. The rate cut will reduce cost of funds or bank borrowing rates and hence we expect a reduction EMIs on Home Loans, Car Loans and Personal Loans as the banks would likely to decrease the interest rates in next 3-4 months. So in summation the interest rate scenario should change for good in 2019: Gaurav Chopra, Founder and CEO, IndiaLends

15.24 pm: The Monetary Policy Committee (MPC) delivered a dovish policy, both in rate action and in stance, while sounding sanguine on low inflation expectations. The sharp lowering of inflation forecasts could enable further policy easing in April. In a significant departure from previous commentaries, there was an emphasis on the need to support growth if inflation objectives are achieved and the MPC noted that the slack in the economy is rising. The RBI has also introduced some welcome regulatory changes. The list includes withdrawal of concentration limits in corporate bonds that will promote participation of Foreign Portfolio Investors, rationalization of interest rate derivatives guidelines which will boost depth and liquidity of derivative markets, and the task force on offshore rupee markets that will foster greater participation in Indian assets. The change in risk-weighting of rated exposure to NBFCs, will help strong NBFCs to get credit thereby easing some of the strain being felt currently:  B Prasanna – Head Global Markets Group, ICICI Bank

15.16 pm: The repo rate cut and neutral stance is a very positive signal by the RBI on softening of liquidity and the interest rate cycle and hope of benign inflation rates. Further, the linking of risk weights on the exposure to NBFCs will improve flow to the sector and particularly high rated entities, which will boost the credit flow to the sector and lead to consumption financing: Sanjay Chamria, VC & MD, Magma Fincorp

15.04 pm: The 25 bps cut and other measures by the RBI is a positive step. As the inflation is under control and below 3%, we expected the central bank to reduce the repo rate. A relief on the cost of funds is awaited eagerly by the SMEs as it helps them with reduced borrowing cost and offers much needed impetus, thereby improving their financial health. RBI’s current rate cut is indicating that in the next fiscal, if the inflation remains below 3% and oil prices remain stable, we expect rates to further reduce by ~25 bps: Umesh Revankar, MD and CEO - Shriram Transport Finance

15.02 pm: With an extremely benign inflation reading and limited risks to upside and with the INR having stabilized, it was it was clear to us that the time is right to provide the much-needed support to economic growth. This could also be gauged from the RBI policy announcement, where members unanimously voted in favour of changing their policy stance to Neutral from that of Calibrated Tightening. To our mind, it was only a matter of whether rates were cut in today’s meeting or the during the next policy meet of RBI. In our recent strategy note post Union Budget, we opined that while the Central Bank will take cognizance of the budgeted pause in the fiscal deficit glide, it will not hold back from cutting the Repo rate. The RBI chose to cut Repo by 25 basis points in today’s policy itself, with four members (including the Governor) favouring a rate cut while two members opted for status quo on rates. We welcome this decision and believe that the present situation opens up doors for more rate cut action in the year 2019: Amar Ambani, President & Head of Research, YES Securities

15.00 pm: RBI has mandated to target inflation. If inflation is around 2.4% CPI, which is way below RBI guidance then it is natural to cut by 25 bps. Actually, there’s room for further cut. But considering global trends, it is still a conservative stance that RBI has taken: Satyam Kumar, co-founder & CEO, LoanTap

14.45 pm: Commenting on the Monetary Policy Announcement by RBI earlier today, Sandip Somany, President, FICCI said “It is a welcome beginning and we are happy to note that RBI’s MPC has decided to change the stance of Monetary Policy from calibrated tightening to neutral. There is also a firm recognition of the need to strengthen private investment activity and buttress private consumption. While FICCI had hoped for a larger cut in the repo rate, we believe that the cut of 25 basis points will be followed up with more such measures in the subsequent months.”

14.30 pm: The repo rate cut today and the “neutral” stance adopted by the Central Bank is a welcome move and will positively impact the economy ahead of the elections. Higher Interest rates have prevailed for a longer period than necessary even as Inflation as per the WPI index remained muted. It held back growth and halted investments in capital intensive sectors of the economy, particularly in infrastructure. A rate reduction will act as a catalyst and provide the much needed impetus to build upon the various initiatives announced in the Union Budget. The overall direction of the monetary policy is oriented towards growth and the change in stance provides the Cental Bank much needed flexibility to meet growth challenges in the future. This augurs well for the real estate sector and could lead to fence sitters coming back to the market. It is now up to the banks to reduce lending rates and ensure that the common man reaps the benefit of this move: Surendra Hiranandani, Founder & Director, House of Hiranandani

14.15 pm: The 25 bps cut is in line with our expectation which will aid the RBI to boost the liquidity in the system. The overall investment demand and the credit environment of the economy will pick up. We expect further rate cuts to come our way if the inflationary pressures are well under control: George Alexander Muthoot, MD - Muthoot Finance Limited

13.57 pm: After the boost given to the realty sector in the budget, this 25 bps cut will provide the right platform for the housing demand to go up, especially in the mid-income and affordable housing segment across cities as home loan interest rates further fall. We have already started to see huge growth of new enquiries for projects with attractive interest rates and subsidies, which will now continue to 2019-20. Now, homebuyers have lot of benefits to finally close their home purchases: Prasoon Chauhan, CEO, HomeKraft

13.56 pm: The reduction in REPO and Reverse REPO rates by the RBI by 25 BPS is a welcome move, which we hope will provide a further fillip to the demand side for real estate. As a result of this reduction, we hope that banks will pass on the benefits of the revised rates to the end consumer of loans, thereby making it easier for them to make their purchase decision.  For a sector which has been suffering from poor end user demand for some time now, this is a step in the right direction: Shishir Baijal, Chairman & Managing Director, Knight Frank

13.55 pm: The RBI MPC has delighted market participants by changing stance to neutral and cutting repo rate by 25 bps. Q3FY20 inflation expectation cut to 3.9% means some more rate cuts can be expected in the course of the next few meetings. While Bond yields are yet to respond to the rate cut, we think they may start to fall materially when FPIs revise their short term view on India (overcoming their fears on fiscal situation). Equity markets could rise some more, welcoming an attempt to address recent issues in the credit markets, ultimately leading to higher growth: Dhiraj Relli, MD & CEO, HDFC Securities

13.45 pm: Finance Minister Piyush Goyal said that RBI's decision to cut the repo rate will give a boost to the economy.

13.28 pm: The 25 bps cut in policy rates is a welcome move and in line with industry expectations as well as with central banks in advanced economies. Resulting lower cost of funds would help the NBFC sector to recover faster and its positive effects would trickle down to the larger sections of the economy namely real estate and MSMEs. NBFCs would also benefit from RBI’s decision to link bank risk weights on NBFC exposures to the rating of such instruments. This would improve flow of bank credit to the better managed NBFCs, helping segregate the men from boys. This alongwith the harmonization of Asset Finance Companies (AFC), Loan Companies, and Investment Companies, into a single category would fastrack the process of consolidation in this space, as we have been expecting for some time. Additionally we also welcome the relaxation in FPI limits investing in corporate bonds and feel that this is the right step towards deepen the Indian debt markets: Khushru Jijina, MD, Piramal Capital and Housing Finance

12.50 pm: RBI governor says interim dividend payment is a legal provision, up to govt to decide how to spend it

12.48 pm: Good news for farmers

12.47 pm: RBI rules out another rate till inflation comes down to the mandated 4 percent: Governor Shaktikanta Das

12.42 pm: Industry was expecting a bigger rate cut than announced. As headline inflation is way below target, MPC could have given 50 bps relaxation to industry. It would have helped accelerate sales growth in residential real estate which is a major contributor to economy. Change of stance to neutral is positive as it means we can look forward to future rate cuts: Ankur Dhawan- Chief Investment Officer-PropTiger.com

12.40 pm: The Reserve Bank of India on Thursday said it would set up an internal working group to examine issues pertaining to agricultural loans, including regional disparity and extent of coverage.

12.38 pm: RBI Governor Shaktikanta Das responds to Zee Business's Swati Khandelwal's question:

12.35 pm: New inflation projections factor in the possibility of fiscal slippages: RBI Governor Shaktikanta Das

12.32 pm: Enough cash in the system: Governor Shaktikanta Das

12.30 pm: Impact of various budget proposals are factored into inflation projections, says RBI Governor

12.25 pm: Sensex: 37,040  | Nifty: 11,081

12.23 pm: RBI Governor promises to ensure liquidity to all sectors.

12.20 pm: Since the last MPC meeting in December 2018, there has been a slowdown in global economic activity. Among key advanced economies (AEs), economic activity in the US lost some steam in Q4:2018. The outlook for Q1:2019 is clouded by the partial government shutdown, though the labour market conditions remain strong. In the Euro area, economic activity lost momentum on weak industrial activity. The Japanese economy is gradually recovering and an accommodative monetary policy stance is expected to buttress domestic spending.

12.15 pm: 'Inflation may rise due to increase in vegetable prices'

12.10 pm: GDP growth for 2019-20 is projected at 7.4 per cent – in the range of 7.2-7.4 per cent in H1, and 7.5 per cent in Q3 – with risks evenly balanced.

12.08 pm: Retail inflation, measured by y-o-y change in the CPI, declined from 3.4 per cent in October 2018 to 2.2 per cent in December, the lowest print in the last eighteen months. Continuing deflation in food items, a sharp fall in fuel inflation and some edging down of inflation excluding food and fuel contributed to the decline in headline inflation.

12.06 pm: Watch Governor Shaktikanta Das LIVE address here

12.03 pm: India’s foreign exchange reserves were at US$ 400.2 billion on February 1, 2019: RBI

12.00 pm: The decision to change the monetary policy stance was unanimous. As regards the reduction in the policy repo rate, Dr. Ravindra H. Dholakia, Dr. Pami Dua, Dr. Michael Debabrata Patra and Shri Shaktikanta Das voted in favour of the decision. Dr. Chetan Ghate and Dr. Viral V. Acharya voted to keep the policy rate unchanged. The MPC reiterates its commitment to achieving the medium-term target for headline inflation of 4 per cent on a durable basis. The minutes of the MPC’s meeting will be published by February 21, 2019.

11.58 am: The next meeting of the MPC is scheduled from April 2 to 4, 2019.

11.55 am: RBI reduces the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 6.25 per cent.

11.50 am: Sensex surges over 130 points to 37,113. Nifty up by 37 points to 11,100

11.45 am: RBI cuts repo rate by 25 bps

11.40 am: Track RBI Monetary Police decisions Live Here

11.33 am: Dhananjay Sinha, head-Institutional Research, Economist and Strategy at Emkay Global Financial Services said, "With the tax incentives, farming boosts, there is a possibility of that translating to higher demand and consumption and I think the yields are showing that".

11.25 am: The 10-year benchmark government bond yield rose to 7.57 percent in early trade, from Wednesday's close of 7.56 percent while the rupee weakened marginally to 71.60 to the dollar compared with its previous close of 71.56.

11.20 am: Over two-thirds of 65 economists polled by Reuters predicted the RBI to hold its repo rate at 6.50 percent.

11.15 am: A softer stance could aid Prime Minister Narendra Modi's government, which wants to boost lending and lift growth as it faces national elections by May.

11.00 am: Sensex: 37,087 and Nifty: 11,092

10.43 am: New RBI Governor Shaktikanta Das has to show that he is not an agent of the government: Anand Tandon | Watch full video below:

10.25 am: DD Sharma, Chairman & CEO, Risk Capital Advisory Services Pvt Ltd, differs from the majority over the rate cut issue. Check what he said: 

10.15 am: The rupee Thursday depreciated 20 paise to 71.76 in early trade at the forex market ahead of the Reserve Bank of India's interest rate decision.

10.00 am: Sensex trading at 37,080 and Nifty at 11,085.

9.40 am: 'Rate Cut' or 'Status Quo', what will be RBI Governor Shaktikanta Das' take in this monetary policy meet?

We now expect RBI to change stance in February, but it is likely to remain on a pause mode. The first cut might happen in April 2019, said Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser at SBI.

9.35 am: Read: RBI Monetary Policy: 9 key factors that will surround governor Shaktikanta Das' rate decision

Currently, the repo rate stands at 6.50% with reverse repo rate at 6.25%; whereas marginal standing facility (MSF) rate and bank rate at 6.75% each. 

09.30 am: RBI Credit Policy: Will there be a rate cut?

After the massive giveaways to farmers and major tax rebate to the middle class in the interim Budget, all eyes are on the first meeting of Monetary Policy Committee to see if there will be any downward revision of the repo rate and CRR to ease pressure on banks.

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Written By: ZeeBiz WebTeam
Updated: Sat, Feb 09, 2019
11:24 AM IST
ZeeBiz WebDesk
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