India central bank cuts rates ahead of election

While four members of the MPC including Das voted for a rate cut, RBI deputy governor Viral Acharya and independent member Chetan Ghate, a professor at the Indian Statistical Institute were in favour of maintaining a status quo on rates.

A former economic affairs secretary, who now has the charge of central bank and is perceived to be close to the Union government, will not take "no" from banks on rate cuts too quickly.

India's last rate cut, to 6.00%, was in August 2017.

RBI Governor Shaktikanta Das cut the interest rate by 0.25 percent to 6.25 percent, a move that will lead to reduction of lending rate by banks leading to lower EMI for housing, auto loan and corporate borrowers.

Owing to benign inflation numbers, the central bank changed its policy stance to neutral from calibrated tightening, adopted in October policy meet past year under the then RBI Governor Urjit Patel.

The central bank projected GDP growth for 2019-20 at 7.4 per cent.

RBI has decided enhancement of collateral free agriculture loan from Rs 1 lakh to Rs 1.6 lakhs.

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.

Further, as per MPC, investment activity is recovering but supported mainly by public spending on infrastructure and that output gap has opened up slightly. "The need is to strengthen private investment activity and buttress private consumption", the policy said.

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

"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. It also stayed below RBI's inflation target of 4 per cent for five consecutive months. This could allow the RBI more elbow room to lower lending rates, eventually bringing down borrowing costs for individuals and corporate houses.

Inflation expectations, a broad measure of what businesses, investors and households think about how prices will change in the coming months, have softened by 80 basis points for the next three months and the 130 points in the next 12 months, according to the RBI's latest survey in December 2018.

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.

  • Eleanor Harrison