RBI cuts repo rate by 25 bps, maintains accommodative stance

RBI Monetary Policy 25 bps rate cut insufficient to revive real estate demand

RBI cuts repo rate by 25 bps, maintains accommodative stance

With three more months left in 2019 and another rate cut likely in December's policy meeting, it would be interesting to see how close we get to the 2009 figure.

The government has recently announced a series of measures including the steepest cut in corporate tax, the rollback of enhanced surcharge on Foreign Portfolio Investors, among others to jump-start growth which hit a six-year low of 5 percent during the first quarter of the current fiscal.

Some RBI watchers expect a larger cut this week, after it cut the repo rate but an unconventional 35 bps in August. The RBI monetary policy committee announced a 25 basis points cut in its policy rates from 5.40% to 5.15%.

The RBI maintained its "accommodative" stance and said it would maintain this position "as long as it is necessary" to revive growth while ensuring inflation remains within target.

The GDP growth for 2019-20 has been revised downwards from 6.9 per cent in the August policy to 6.1 per cent.

The recent trends in pick-up in ecommerce sales this season is encouraging and significantly has been supported by the equated monthly instalment (EMI) route, which would be given a thrust by lower interest rates.

It was widely speculated that the RBI might change its stance to "neutral" due to the fiscal pressure expected out of the Centre's recent growth inducing measures.

"As soon as this issue came to the central bank's notice, the RBI has acted very swiftly".

The reverse repo rate - the interest rate the central bank pays commercial lenders for taking short-term deposits - was reduced to 4.9 percent. A rate cut after all these announcements appeared to be a foregone decision.

"This further reduction of repo rate will not only bring down the lending rates but also incentivise investment and boost consumption", said Surendra Hiranandani, CMD, House of Hiranandani.

If the RBI delivers a 25 bps cut as expected, traders will focus on the wording and tone of the monetary policy statement for clues on further easing. A repo rate cut allows banks to reduce interest rates for consumers and lowers equal monthly instalments on home loans, auto loans and personal loans.

Banking sector crisis Yet, growth is not the only worry RBI has.

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