The Reserve Bank of India (RBI) on Friday reduced the repo rate by 25 basis points (bps) to 5.15%, the lowest since March 2010. It also reduced its GDP growth forecast for FY20 to 6.1% from 6.9%.
The Monetary Policy Committee has “also decided to continue with the accommodative stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target”.
Here are reactions from the industry on the policy decision:
Chandra Shekhar Ghosh, MD & CEO, Bandhan Bank
The rate cut has been in line with expectations. While overall growth seems to be sluggish, in core Bandhan Bank markets – rural and semi-urban India – we are experiencing business as usual. The setting up of the ‘Acceptance Development Fund’ is an encouraging move and should help in driving easier spends and consumption.
Rajnish Kumar, chairman, SBI
The 25 bps rate cut coupled with an explicit policy acknowledgement of further rate cuts would ensure that fiscal and monetary policy work in tandem in arresting growth concerns. The lowering of the GDP growth outlook to 6.1% for FY20 also reflects a realistic projection in view of weak domestic demand, slowing global growth and continuing trade tensions.
On the development and regulatory front the decision to extend the collateralised liquidity support on a round-the-clock basis is a welcome step as it will help banks extend the NEFT facility in a seamless and non-disruptive manner. Allowing domestic banks to quote exchange rates on a 24-hour basis heralds a paradigm shift for the Indian forex market. Having said that, how much competitive rates banks will be able to quote post Indian market hours, will be keenly watched going forward. Creation of the Acceptance Development Fund (ADF) and the decision to have 100% digitally enabled districts in each state/UT will further expedite the current pace of expansion of the digital payments ecosystem across the country.
Jyoti Vaswani, chief investment officer, Future Generali India Life Insurance
The MPC has yet again exemplified its proactiveness by complementing the fiscal initiatives of the government with monetary policy easing in order to more effectively revive the economy. The MPC’s emphasis on maintaining the accommodative stance as long as it’s imperative to resuscitate growth rightly sets the stage for more rate cuts in the future, albeit the policy could have been more appealing with some counter-cyclical measures. While the MPC has delivered with a long series of rate cuts, ensuring policy efficacy in terms of transmission in lending rates and pickup in growth should be the way forward.
Manoj Nambiar, chairperson, MFIN
This is a good move reflecting the change in household income since 2015 and allows clients to avail a higher loan amount from RBI-regulated formal financial institutions. Besides this change it will be a win-win situation for the lender and the borrower by providing more room to individual NBFC-MFIs to lend and allow more households access credit. The microfinance lenders will use this increased limit to continue to lend responsibly to the more than 50 million borrowers and contribute to financial inclusion.
Surendra Hiranandani, chairman and managing director, House of Hiranandani
With the festive season round the corner, we definitely welcome this move as people make huge purchases during Navratras and Diwali. The real estate sector has been looking forward to such initiatives to boost sales as it is highly sensitive to interest rate movements. This further reduction of repo rate will not only bring down the lending rates but also incentivise investment and boost consumption. The government has already announced a series of measures including a steep cut in corporate tax amongst others to jump-start growth and revive the sagging economy.
George Alexander Muthoot, MD, Muthoot Finance
RBI’s rate cut of 25 bps focuses on improving the financial health of the economy and managing inflation. We look forward to recovery in consumption levels with banks eventually passing on the benefits to both corporates and consumers. With constant rate cuts, amendments in policies and the beginning of festive season, we expect the economy to be soon in its best health.
Zarin Daruwala, CEO, India, Standard Chartered Bank
RBI reaffirmed its strong commitment to India’s growth by cutting the repo rate by 25 bps and continuing with its accommodative stance. Cumulative reduction of 135 bps in repo rate delivered so far in 2019, along with the recent cut in corporate tax by the Govt., should help revive growth in the coming months. Additionally, the move to a 24x7 NEFT payment system and allowing domestic banks to offer forex prices to non-residents, are some of the other positive steps.
Mihir Vora, chief investment officer, Max Life Insurance
Taking into account the continuing slowdown including the high-frequency indicators, RBI revised its growth projections for FY20 downwards from 6.9% in the August policy to 6.1%. The focus has shifted further towards supporting growth as inflation is well below RBI’s 4% target. Further, global data also indicates that even the global growth outlook is weakening.
With this backdrop, RBI re-iterated that with inflation expected to remain below target, there is policy space to address growth concerns by reinvigorating domestic demand within flexible inflation targeting mandate. RBI’s move to reduce repo rate by 25 bps is a welcome one and will help in lowering cost of capital in the economy.