RBI seen changing its stance, but may hold rates

RBI seen changing its stance, but may hold rates

RBI seen changing its stance, but may hold rates

The MPC also made a decision to change the monetary policy stance from calibrated tightening to neutral.

"Pronab Sen, former principal adviser of Planning Commission, also believes there is a compelling case for a rate cut now". "The shift in stance from calibrated tightening to neutral provides flexibility to address, and the room to address, sustained growth of India's economy over the coming months as long as inflation remains benign".

Some economists said Das, a seasoned bureaucrat, is likely to promote growth and aid the fragile financial sector, as inflation is comfortable at present, in December dropping to an 18-month low of 2.19 percent.

"The MPC will now be looking at a balance of growth and inflation rather than just focusing on inflation alone", said Teresa John, an economist at Nirmal Bang Equities Pvt.in Mumbai. The big change supporting early rate cut was a large reduction in inflation forecasts. According to Acharya, the outlook for prices had changed in December itself following a crash in oil prices, but the central bank did not change the stance, choosing to move in small steps.

This was the first MPC meeting under Das, who took over from Urjit Patel. Mr Patel had led the MPC to raise interest rates twice previous year.

The six-member monetary policy committee, headed by RBI Governor Shaktikanta Das, changed the policy stance to "neutral" from "calibrated tightening".

Thursday's cut is welcome news for Prime Minister Narendra Modi's government, which wants to boost lending and lift growth as it faces elections by May.

Sonal Varma, chief India economist at Nomura Holdings Inc.in Singapore, said the RBI's autonomy wasn't at issue this time around. "But there should be consistency in views over a period of time".

Shaktikanata Das-led Reserve Bank of India (RBI) has reduced its lending rate by 0.25 per cent to 6.25 per cent with the monetary policy committee voted 4:2 in the favour of a rate cut. Last week it unveiled an expansionary budget, which included $13 billion of consumer stimulus ahead of an election.

Patel's exit prompted some to fret the RBI's independence was under threat, but some economists argued that Thursday's decision should not be read as a surrender to pressure. With headline inflation around 4 percent, RBI may use policy space to boost growth.

The inflation rate is estimated at 3.2-3.4% in the first half of the year 2019-20 and 3.9% in the third quarter of 2019-20, he said.

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