The RBI had projected the GDP growth for 2018-19 in the December policy at 7.4 per cent (7.2-7.3 per cent in H2) and at 7.5 per cent for H1:2019-20, with risks somewhat to the downside.
RBI has decided enhancement of collateral free agriculture loan from Rs 1 lakh to Rs 1.6 lakhs. "Investment activity is recovering supported mainly by public spending on infrastructure", RBI Governor said. Past three governors have been blaming the banks for not passing on their rate cuts to customers, thus offsetting the efforts of the monetary authority to lower interest cost for the economy.
The focus will now shift to growth given the stability in inflation levels, said Das, who was presenting the monetary policy review after taking charge as RBI Governor in December.
When asked about transmission and banks' reluctance to pass on the rate decreases to borrowers, Das said it is up to the individual banks to take a call on their lending, underlining that the RBI only gives a directional move. "The need is to strengthen private investment activity and buttress private consumption". Besides, it acknowledged domestic aggregate bank credit and overall financial flows to the commercial sector as robust, but yet to be broad-based.
Other uncertainties flagged by the MPC include uncertain monsoons, volatile vegetable prices, hazy oil price outlook, further heightening of trade tensions and geopolitical uncertainties, the unusual spike in the prices of health and education, and volatile financial markets. Oil prices and the lagged impact of the recent depreciation of the Indian rupee could be a drag on net exports while slowing global demand could pose headwinds.
"Continuing deflation in food items, a sharp fall in fuel inflation and some edging down of inflation excluding food and fuel contributed to the decline in headline inflation", the RBI said.
"On the basis of an assessment of the current and evolving macroeconomic situation at its meeting today, the Monetary Policy Committee (MPC) chose to reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 6.50% to 6.25% with immediate effect", the RBI said in a statement.
"Inflation in the prices of farm inputs and industrial raw materials remain elevated, despite some softening. Change of stance to neutral is positive as it means we can look forward to future rate cuts". Among the MPC members, Ravindra H. Dholakia, Pami Dua, Michael Debabrata Patra and Das voted in favour of a repo rate cut.
While MPC voted unanimously to change the stance to "neutral", only four out of six members voted for a rate cut, providing glimpse of the changing dynamics of MPC, though somewhat on expected lines.
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