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

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.

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.