RBI cuts key rate by 25 bps, changes stance to neutral

Mumbai: The Reserve Bank of India on Thursday cut benchmark interest rate by 0.25 per cent to 6.25 per cent on expectation of inflation staying within its target range, a move that may translate into lower monthly installments for home and other loans.

The central bank also changed its monetary policy stance to 'neutral' from the earlier 'calibrated tightening', signalling further softening on its approach towards interest rates.

In the first policy review under Governor Shaktikanta Das, the six-member Monetary Policy Committee voted 4:2 in favour of the rate cut, while the decision to change policy stance was unanimous.

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.

Benchmark interest rate was cut by 0.25 per cent to 6.25 per cent, a move that would result in lower cost of borrowing for the banks that are expected to transmit the same to individuals and corporates.

"Headline inflation is projected to remain soft in the near term, reflecting the current low level of inflation and the benign food inflation outlook,” the MPC resolution said, adding "we need to be watchful of vegetable prices, oil prices, trade tensions, health and education inflation, financial market volatility and monsoon outcomes".

The rate cut is in consonance of achieving the medium term objective of maintaining inflation at the 4 per cent level while supporting growth, it said.

Deputy Governor Viral Acharya and another MPC member, Chetan Ghate, voted for status quo in interest rates, while Das and three others voted for a cut in interest rates.

Following are the highlights of the sixth bi-monthly monetary statement for 2018-19 by the RBI

RBI cuts key lending rate (repo) by 0.25 pc to 6.25 pc

Reverse repo rate cut to 6 pc, bank rate to 6.5 pc, CRR unchanged at 4 pc

Headline inflation estimates revised down to 2.8 pc in March quarter, 3.2-3.4 pc in first half of next fiscal and 3.9 pc in Q3 of FY'20

Projects GDP growth to accelerate to 7.4 pc next fiscal, from 7.2 pc in 2018-19

Pegs April-September growth in range of 7.2-7.4 pc, and 7.5 pc in Q3 of 2019-20

Oil price outlook hazy, trade tensions to weigh on global growth prospects

Union budget proposals to boost demand by raising disposable incomes

To revise definition of bulk deposits as single rupee deposits of Rs 2 crore and above from Rs 1 crore currently

To issue guidelines to harmonise major categories of NBFCs

Proposes to set up a task force on Offshore Rupee Markets to ensure Rupee value stability

Removes restrictions on Foreign Portfolio Investors investing in corporate debt market

To come out with discussion paper on Payment Gateway Service Providers and Payment Aggregators

Hikes limit of collateral-free agricultural loans to Rs 1.6 lakh from Rs 1 lakh, to help small and marginal farmers

Constitutes Working Group to review agricultural credit

Monetary policy committee votes 4:2 in favour of rate cut, unanimous on change in stance

2 MPC members Chetan Ghate and Viral Acharya were for status quo in rates

Next meeting of the MPC from April 2-4.