RBI policy: Further rate cuts depend on monsoon, inflation | business | Hindustan Times
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RBI policy: Further rate cuts depend on monsoon, inflation

The Reserve Bank of India (RBI) cut its repo rate by 25 basis points to 6.50 percent on Tuesday, making a widely expected first reduction since September to bring the rate to its lowest in more than five years.

business Updated: Apr 05, 2016 11:59 IST
India’s infrastructure output grew an annual 5.7 percent in February, its fastest pace in at least 13 months, mainly driven by a surge in production of cement and fertilizers, government data showed (Photo by Kunal Patil/ Hindustan Times)
India’s infrastructure output grew an annual 5.7 percent in February, its fastest pace in at least 13 months, mainly driven by a surge in production of cement and fertilizers, government data showed (Photo by Kunal Patil/ Hindustan Times)(Hindustan Times)

The Reserve Bank of India (RBI) cut its repo rate by 25 basis points to 6.50 percent on Tuesday, making a widely expected first reduction since September to bring the rate to its lowest in more than five years.

Read more: RBI cuts repo rate by 25 basis points, all eyes now on banks

COMMENTARY

SHUBHADA RAO, CHIEF ECONOMIST, YES BANK, MUMBAI

“The policy sounds dovish. Greater focus is on liquidity management, more importantly the commentary is clearly guiding on further rate cuts, with four riders, namely: good monsoon, low headline CPI, softening core CPI and improving rate transmission. On these four parameters further rate cuts would play out.”

RADHIKA RAO, ECONOMIST, DBS BANK, SINGAPORE

“In all, today’s decision was more focused on addressing liquidity shortage and easing the transmission mechanism. There is a significant shift in their emphasis on the NDTL framework, narrowing the corridor around the operational repo rate and CRR changes. This is to ensure that the easy policy stance percolates to the real economy and materially lowers financing costs. These changes are likely to provide positive impetus to the financial markets in the near-term.”

BACKGROUND

* India’s infrastructure output grew an annual 5.7 percent in February, its fastest pace in at least 13 months, mainly driven by a surge in production of cement and fertilizers, government data showed.

* India’s fiscal deficit was 5.73 trillion rupees ($86.49 billion) during April-February, or 107.1 percent of the full-year target, government data showed.

* India’s external debt was at $480.2 billion at end-December 2015, down $1.2 billion from end September, the finance ministry said.

* The Reserve Bank of India fixed-rate loans of up to three years offered by lenders will have to be set based on their marginal cost of funding.

* India’s central bank said foreign investors will be allowed to buy up to 275 billion rupees ($4.13 billion) in additional sovereign debt starting next month, as part of its previously announced plan to allow increased overseas investments.

* India’s balance of payments swung to a surplus in October-December, marking a modest upturn in its financial position that analysts believe may prove resistant to global economic fragility.

* India’s retail inflation eased in February, helped by smaller rises in food prices after edging up for six straight months, raising expectations of a central bank rate cut.

* India’s industrial output contracted at an annual rate of 1.5 percent in January, government data showed.