India central bank cuts rates ahead of election

RBI interest rate,repo rate,GDP

These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of 2 per cent up or down, while supporting growth, the MPC said in a statement.

Banks have also been given greater operational freedom to offer interest rates to bulk deposits, raising the definition of "bulk deposits" to Rs 2 crore from Rs 1 crore now.

The central bank's surprise cut in interest rate could work well with the Narendra Modi government at the Centre which wants to boost growth in an election year.

India's central bank on Thursday unexpectedly lowered interest rates and, as anticipated, shifted its stance to "neutral" from "calibrated tightening" to boost a slowing economy after a sharp fall in the inflation rate.

After months of maintaining status quo over the key lending rate, the RBI today finally announced a Repo Rate Cut by 0.25%.

RBI Governor Shaktikanta Das said, "we are constantly & continuously monitoring the liquidity situation and based on the requirement we will ensure that there is no liquidity scarcity". "The need is to strengthen private investment activity and buttress private consumption".

Observing that actual inflation in the third quarter of 2018-19 was marginally lower than what was projected, the RBI said, "There have been downward revisions in inflation projections during the course of the year, reflecting mainly the unprecedented soft inflation recorded across food sub-groups".

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"Looking beyond the current year, the growth outlook is likely to be influenced by. aggregate bank credit; and overall financial flows to the commercial sector continue to be strong, but are yet to be broad-based", the MPC said.

"In particular, trade tensions and associated uncertainties appear to be moderating global growth", it said.

Headline inflation will likely persist within the RBI's tolerable level of 4 percent.

India's retail inflation eased to an 18-month low of 2.19 percent in December, driven by cheaper food items. 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.

"On the basis of an assessment of the current and evolving macroeconomic situation at its meeting today, the Monetary Policy Committee (MPC) chose to reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 6.50% to 6.25% with immediate effect", the RBI said in a statement.

Dr Ravindra H. Dholakia, Dr Pami Dua, Dr Michael Debabrata Patra and Shri Shaktikanta Das voted in favour of rate cut decision while Dr Chetan Ghate and Dr Viral V. Acharya voted to keep the policy rate unchanged.

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