RBI cuts repo rate, changes policy stance to 'neutral'; home loans could get cheaper

The reserve Bank of India on Thursday announced the key rates. The Repo rate has been reduced by 25 basis points, now at 6.25 from previous. 6.5 per cent. This change is on the expected line. The announcement came after RBI Governor Shaktikanta Das held the crucial Monetary Policy Committee (MPC) meet on Thursday. It is the first MPC meeting under Das, who took charge in December 2018 following the sudden exit of Urjit Patel. The RBI has maintained status quo on the key rates in the October and December policy reviews. The RBI has also received a proposal for an umbrella organisation for urban cooperative banks. The RBI has decided on this positively. A decision on the specifics of the umbrella organisation proposal will be taken shortly.

The RBI has revised downwards retail inflation forecast to 2.8% for March quarter 2019. Headline inflation is expected to remain contained below or at its target of 4%. This has opened space for policy action. Investment activity is recovering supported mainly by public spending on infrastructure, Das said. According to the Central Bank, the GDP growth is expected to go up to 7.4% in FY20, from the FY19 government estimate of 7.2%. Hailing the Narendra Modi government’s Union Budget, Das said that the proposals will boost demand by raising disposable incomes, may take time to play out. Export growth on a year-on-year basis was almost flat in November and December 2018, primarily due to a high base effect and weak global demand, Das added. The RBI has decided enhancement of collateral free agriculture loan from Rs 1 lakh to Rs 1.6 lakhs. This enhancement Rs 60,000 has been taken in view of the overall rise in inflation, marginal agriculture input and benefit to small farmers, Das said.

Export growth on a year-on-year basis was almost flat in November and December 2018, primarily due to a high base effect and weak global demand, Das added.