RBI Cuts Repo Rate To 6-Year Low In Urjit Patel's First Monetary Policy

Urjit Patel, who replaced the flamboyant Raghuram Rajan as Reserve Bank of India Governor, is in the spotlight today as he chairs his first policy review, which for the first time will see a committee set interest rates. 

Domestic equity markets recovered from its day's low in late trades after the Reserve Bank of India (RBI) governor Urjit Patel in his first monetary policy announcement affected a 25 basis point cut in policy rate, which buoyed sentiment for the third straight session.

Today's rate decision, the first in the tenure of new RBI chief Urijit Patel, also began a new era for the central bank. The policy decision was for the first time made by a six-member panel called Monetary Policy Committee or MPC; the decision was so far taken by the RBI governor alone. All six members voted for a rate cut in a unanimous decision. Welcoming MPC members, Dr Patel in the post-policy media briefing said, "They will be a source of support to RBI and help enhance the process and quality of monetary policy making in the country."

"Weak global demand is actually going to drag down trade volumes. It is possible that IMF may downgrade global growth further. There is also the issue of outcome of US presidential elections," said Governor Urjit Patel, 52, who took over last month from Raghuram Rajan after serving for three years as a deputy governor. 

On economic growth, the RBI expects momentum "to quicken with a normal monsoon raising agricultural growth and rural demand, as well as by the stimulus to the urban consumption spending from the pay commission's award". The RBI retained its GDP growth projection for this fiscal year at 7.6 per cent.

"The 25 bps cut by the RBI to boost the liquidity in the system is a welcome move. We expect it will support the economy’s investment demand and uptick in credit environment."
 

Following are the highlights of RBI's fourth bi-monthly monetary policy statement, 2016-17:

• Repo rate cut by 0.25% to 6.25%, Reverse Repo at 5.75%.
   
• Cash reserve ratio or CRR unchanged at 4%
   
• Growth forecast at 7.6% for the current fiscal
• Normal monsoon to quicken growth momentum
• Inflation target remains 5% for March 2017, upside risk
• 6-member Monetary Policy Committee makes India's first collective interest rate decision
• All MPC members voted in favour of rate cut
• Foreign exchange reserve rose to all-time high of USD 372 billion by September
• Govt has announced measures to cool food inflation, which opened up space for rate cut
• Banks should cut lending rates as small savings rate has been lowered
• RBI Governor expects further downgrading of global growth
• To allow start-ups to raise up to USD 3 million ECB annually
• Next monetary policy on December 7.
• RBI's research department sees inflation at 5.3 percent in Jan-Mar 2017, from 5 per cent in the previous quarter
• Sees growth picking up to 7.9 percent in next year
• Pay Commission recommendations to spur price pressure
• Uncertainty around US elections, crude prices, global demand.