India's central bank rate cut is likely to please Modi

India's central bank rate cut is likely to please Modi

India's central bank rate cut is likely to please Modi

The RBI concluded that India needs some higher monetary policy intervention, and reduced the benchmark policy rate by 25 basis points (bps) on Thursday.

The MPC has also chose to change the monetary policy stance from "calibrated tightening" to "neutral".

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.

The RBI policy is a very dovish one and signals further rate cuts. "The decision to change the monetary policy stance was unanimous", the RBI said in a release after the meeting.

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India's central bank unexpectedly lowered interest rates on Thursday in a move that will likely be welcomed by Prime Minister Narendra Modi who wants to boost lending and economic growth as his government gears up for parliamentary elections later this year.

It has revised downwards the path of retail inflation to 2.8 per cent in the fourth quarter of the fiscal, 3.2-3.4 per cent in the first half of 2019-20 and 3.9 per cent in the third quarter of 2019-20, with risks broadly balanced around the central trajectory. Policymakers predict inflation will rise this year but remain within the RBI's target range. What all this means is that if inflation doesn't surprise on the upside, there will be more rate cuts going ahead. The central bank has cut its estimates on headline inflation for the next year.

Speculations were there that the six-member MPC, headed by RBI Governor Shaktikanta Das, will announce repo rate cut to ease pressure on banks. While RBI's mandate is price stability (targeting inflation), the RBI Act also says that it needs to do so "keeping in mind the objective of growth", Das said then to make his point. "Investment activity is recovering but supported mainly by public spending on infrastructure", it said, adding that the need is to strengthen private investment activity and buttress private consumption.

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