The MPC meeting - the first for Das as governor - was closely watched after tension between the RBI and the government prompted his predecessor Urjit Patel to abruptly quit in December, amid government demands to relax lending curbs and hand over surplus reserves. Das didn't disappoint and has announced an eventful policy.
The RBI raised rates twice past year over concerns about rising prices but with inflation now at an 18-month low the bank said it was time to opt for a reduction.
More importantly, the MPC has spelt out the change in policy stance to "neutral" from what was called "calibrated tightening so far".
The rate cut continues a trend in which some major central banks, anxious about slowing global growth and helped by cooling inflation, have moved firmly away from last year's tightening moves or tones. Taking into consideration key factors such as lower food inflation, moderation in the fuel group, recent unusual pick-up in the prices of health and education, crude oil prices outlook and moderation in inflation expectations of households, the CPI inflation is revised downwards to 2.8 per cent in fourth quarter of 2018-19 and 3.2-3.4 per cent in first half 2019-20 and 3.9 per cent in third quarter of 2019-20, with risks broadly balanced around the central trajectory. As headline inflation is way below target, MPC could have given 50 bps relaxation to industry.
The central bank's surprise cut in interest rate could work well with the Narendra Modi government at the Centre which wants to boost growth in an election year. One, there will likely be a series of rate cuts from this point and the cumulative impact will considerably put pressure on banks to pass on the benefit to the end-consumer. The decision "restores growth maximization as a secondary objective of the RBI".
Shaktikanta Das, RBI Governor.
The monetary stimulus is what PM Modi's government needs to stoke growth in an election year. That seems to be Das' priority too.
Das, a career bureaucrat, was appointed shortly after Patel resigned as governor amid a heated public battle with the state, which led to questions about the central bank's independence from politics.
"Headline inflation is projected to remain soft in the near term reflecting the current low level of inflation and the benign food inflation outlook", the bank said in a statement. "The need is to strengthen private investment activity and buttress private consumption", said the MPC.
The MPC also noted that "after exhibiting an uptick in the festive month of October, industrial activity, measured by the index of industrial production (IIP), slowed down in November".
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