RBI's policy review refreshingly straightforward and pragmatic, says Mirae Asset's Mahendra Jajoo

RBI Policy MPC Cuts Benchmark Rate RBI Governor Emphasises Growth

Replying to a question, deputy governor Viral Acharya said it will not be fair to assess the today's rate cut as one delivered in urgency. "Many times, we borrow from private moneylenders at a rate of 24 percent as banks refuse to lend us more", said Deshpal Rana, a farmer from Shamli in Uttar Pradesh.

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.

"The central bank's commentary on inflation and growth supports a dovish outlook for the policy", said Shashank Mendiratta, an economist with IBM in New Delhi, noting that on growth the RBI once again highlighted downside risks to its forecast.

This is Das' first monetary policy review after taking charge as the RBI Governor, replacing Urjit Patel.

The GDP projection for 2019-20 is 7.4 %.

The RBI also eased bank lending restrictions for non-banking finance companies and raised the limit on "collateral free" farm loans in an attempt to boost lending to almost 120 million rural households. Das also reaffirmed the RBI's commitment to ensure there is adequate liquidity available in the market saying no sector in the economy will be starved of growth funds. "Investment activity is recovering but supported mainly by public spending on infrastructure".

Some politicians and stock market analysts said the rate cut decision may not improve Modi's chances in the election as the banks could take time to pass on rate cut benefits. "The need is to strengthen private investment activity and buttress private consumption", it said. Besides, it acknowledged domestic aggregate bank credit and overall financial flows to the commercial sector as robust, but yet to be broad-based.

"In particular, trade tensions and associated uncertainties appear to be moderating global growth", it said. Oil prices and the lagged impact of the recent depreciation of the Indian rupee could be a drag on net exports while slowing global demand could pose headwinds. This could allow the RBI more elbow room to lower lending rates, eventually bringing down borrowing costs for individuals and corporate houses.

Amid expectations that the panel will soften its view on inflation risks in the economy, the committee cut repo rate by 25 basis points to 6.25 percent. He said the central bank will be meeting the heads of banks in the next two to three weeks and assured to take up the matter with the bankers.

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