RBI monetary policy highlights: The Reserve Bank of India has cut the benchmark lending rate for the fifth time this year in order to revive the ailing economy. The RBI's Monetary Policy Committee in its fourth bi-monthly meeting reduced the repo rate by 25 basis points to 5.15 percent. The central bank has also lowered the growth forecast for the fiscal year 2019-2020. Shaktikanta Das said the RBI will maintain its current "accommodative" policy stance "as long as it is necessary" to revive growth.
Key statements from RBI governor Shaktikanta Das##Key statements from RBI governor Shaktikanta Das
> The MPC decided to continue with an accommodative stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target.
> The RBI acted very swiftly and promptly after it was brought to its notice.
> So far as the RBI is concerned, I would like to make it very clear that the banking system remains sound and stable and there is no reason for any panic.
> Do not to pay much attention to unnecessary roumors that can create a panic situation.
> One incident cannot be and should not be used to generalise about the health of all cooperative banks.
> Continued to monitor PMC Bank situation and keeping in mind the interest of depositors.
> It is our endeavor to ensure that we don’t see a failure of another large systematically important NBFC.
> RBI has ensured that the government’s borrowing programme goes through in a non-disruptive manner.
> Monitoring top NBFCs very closely and the sector remains under close and intense supervision.
> Will take a fresh look at co-operative bank regulatory framework
Interim Dividend of Rs 30,000 crore
> I am not aware of any such demand from the government for payment of interim dividend.
Fiscal Deficit Target
> The government has made a statement that they will adhere to the fiscal deficit target. Therefore, we have no reason to doubt the commitment to maintain the numbers as given in the budget.
> Whatever shortfall is expected because of corporate tax rate cuts, the government has the option of increasing or making it up from other sources.
Highlights of the RBI policy statement##Highlights of the RBI policy statement
* The Monetary Policy Committee cut the repo rate by 25 basis points to 5.15 percent, with a 5:1 vote. The reverse repo rate was reduced to 4.9 percent.
* Chetan Ghate, Pami Dua, Michael Patra, Bibhu Kanungo and Shaktikanta Das voted for 25 bps cut. Ravindra Dholakia voted for a 40 bps cut.
* All six MPC members voted in favour of a rate cut and for retaining the accommodative stance.
* The RBI lowered its GDP growth projection for FY20 to 6.1 percent from 6.9 percent earlier. Q2 GDP estimated to be at 5.3 percent, 6.6 percent in Q3, 7.2 percent in Q4. The GDP growth is likely to be 7 percent in FY21.
* The RBI’s industrial outlook survey shows muted expansion in demand conditions in Q3. Export prospects have been impacted by slowing global growth and continuing trade tensions.
* On the positive side, the impact of monetary policy easing and several measures announced by the government over the last two months are expected to revive sentiment and spur domestic demand.
* The RBI has also revised slightly upwards the retail inflation projection to 3.4 percent for Q2FY20. It retained inflation projections at 3.5-3.7 percent for H2FY20 and 3.6 percent for Q1FY21.
* Volatile crude oil prices and the persisting geo-political uncertainties pose some upside risks to the inflation outlook.
* The RBI meeting minutes will be published by October 18.
* The next RBI monetary policy meeting is scheduled during December 3-5.
VIDEO: Latha Venkatesh on RBI monetary policy decision##VIDEO: Latha Venkatesh on RBI monetary policy decision
Latha Venkatesh asks Shaktikanta Das: Is OMO for liquidity only or will it also force transmission?##Latha Venkatesh asks Shaktikanta Das: Is OMO for liquidity only or will it also force transmission?
Latha Venkatesh: Will the open market purchase policy of the RBI be only to ensure adequate liquidity in the interbank system or will it also to force further transmission because the market may worry because the yields may be pushed up due to fiscal deficit fears?
Das: OMO is basically a liquidity instrument and in our internal working group (IWG) report it has also been stated that now RBI has several instruments to infuse liquidity. We have the OMOs, which have been there already, so that remains in our tool kit. Then we have the forex swap, which we have introduced last year, then term-repo is something which has been added in the internal working group’s recommendations. So far as RBI is concerned OMOs will be done to deal with liquidity situation either to infuse liquidity or suck out liquidity. In any case RBI does not manage yields, they are market driven.
On IWG recommendations: These are recommendations of Internal Working Group and do not represent the institutional position of the RBI. The IWG recommendations are now placed in the public domain and we will receive comments and observations from public and all stakeholders and they will be taken into consideration and then decide on the final framework.
Upasna Bhardwaj, Senior Economist, Kotak Mahindra Bank, on RBI##Upasna Bhardwaj, Senior Economist, Kotak Mahindra Bank, on RBI
Upasna Bhardwaj, Senior Economist, Kotak Mahindra Bank:
We have to put this in context of the liquidity framework they have come up with but it hasn’t been finalized yet but somewhere we need to keep in mind transmission is important. But now this is a function of overall how balance of payment would be and therefore what would be the require amount of OMOs. They have already in the framework that they would prefer a marginal deficit for a smoother transmission, so we have to keep all of that in perspective.
RBI will keep liquidity surplus: Kaushik Das, Chief Economist, Deutsche Bank##RBI will keep liquidity surplus: Kaushik Das, Chief Economist, Deutsche Bank
Kaushik Das, Chief Economist, Deutsche Bank: "Bond markets will cling on these statements desperately because they would want to have open market operations (OMOs) in the second half because there would be supplies coming in the market and demand for bonds is dependent on how much banks are buying. So if the Reserve Bank of India (RBI) does OMO, it will be great. However, looking at the liquidity framework, what it seems is that, RBI will keep liquidity surplus and it will remain surplus for a long time but I am not sure whether RBI will want to rely just on OMOs to infuse that liquidity. You know that they have talked about introducing a new instrument like long-term repo auction, so they might use those other instruments to infuse liquidity and not rely completely on OMOs because they have also said that excessive OMOs can distraught the yield curve, so you have to keep that in mind."
Sensex, Nifty trade flat after RBI policy decision##Sensex, Nifty trade flat after RBI policy decision
At 12:45 PM, the BSE Sensex was down 7.89 points, or 0.02 percent, at 38,098.98, and NSE’s Nifty 50 traded 18.65 points, or 0.16 percent, lower at 11,295.35.
Shaktikanta Das: Corporate tax cuts net positive for economy##Shaktikanta Das: Corporate tax cuts net positive for economy
Shaktikanta Das: Intensified efforts to restore growth momentum##Shaktikanta Das: Intensified efforts to restore growth momentum
While the recent measures announced by the government are likely to help strengthen private consumption and spur private investment activity, the continuing slowdown warrants intensified efforts to restore the growth momentum.
Ananth Narayan: RBI extremely dovish; more rate cuts expected##Ananth Narayan: RBI extremely dovish; more rate cuts expected
Ananth Narayan, Professor, SPJIMR: “It’s pretty much as per expectations; 25 bps largely, I suppose, on account of questions around fiscal deficit going forward, but Governor Das has compensated for that by ensuring that the language is extremely dovish and the language seems to suggest there are more rate cuts coming through.”
Chart: Repo rate, rev repo rate and FY20 GDP##Chart: Repo rate, rev repo rate and FY20 GDP
Shaktikanta Das: Rural, urban demands continue to slow down##Shaktikanta Das: Rural, urban demands continue to slow down
* Global Financial Markets Have Remained Unsettled
* Slump In Real GDP Growth In Q2 Has Been Followed By Weaker Demand
* Indicators Of Rural & Urban Demand Continue To Slow Down
* Global Central Banks Have Been More Accommodative
* Prospects Of Rabi Season Have Brightened
* Agriculture In India Well-positioned To Lead Recovery In Domestic Demand
* Manufacturing & Construction Sector Activities Looked Better In August
* Liquidity Remained In Surplus During August & September
RBI on GDP: FY20 growth forecast lowered to 6.16%##RBI on GDP: FY20 growth forecast lowered to 6.16%
Real GDP growth for 2019-20 is revised downwards from 6.9 percent in the to 6.16 percent: 5.3 percent in Q2 and in the range of 6.6-7.2 per cent for H2. GDP growth for Q1FY21 is also revised downwards to 7.2 percent.
August policy: Real GDP growth for 2019-20 was at 6.9 percent – in the range of 5.8-6.6 percent for H1FY20 and 7.3-7.5 percent for H2. GDP growth for Q1FY21 was at 7.4 percent.
RBI on inflation: Geopolitical uncertainties pose upside risks##RBI on inflation: Geopolitical uncertainties pose upside risks
Crude oil prices may remain volatile in the near-term; while global demand is slowing down, the persisting geopolitical uncertainties pose some upside risks to the inflation outlook.
MPC vote: Five for 25 bps cut, one for 40 bps##MPC vote: Five for 25 bps cut, one for 40 bps
Five members of the Reserve Bank of India's MPC voted for a 25 bps repo rate cut and one member voted for a 40 bps cut. All MPC members voted for Repo Rate cut, Accommodative stance.
RBI retains inflation forecast##RBI retains inflation forecast
CPI inflation projection is revised slightly upwards to 3.4 per cent for Q2:2019-20, while projections are retained at 3.5-3.7 per cent for H2:2019-20 and 3.6 per cent for Q1:2020-21, with risks evenly balanced
Good sign to create a vertical impact in the economy: PNB CEO##Good sign to create the vertical impact in the economy: PNB CEO
SS Mallikarjuna Rao, MD & CEO of Punjab National Bank (PNB) : As per the expectation of the market, 25 basis points (bps) rate cut has happened from the Reserve Bank of India (RBI) and it is a good sign to create the vertical impact in the economy. With respect to the banking space, in terms of the interest rates are concerned, we are already aware that repo rate linkage advances and retail segment and micro and small segment, besides an amount of agricultural segment has already been taken care by the bank and PNB has also done that effective from October 1. We will look into this rate cut in our ALCO committee to decide upon with respect to marginal cost of funds based lending rate (MCLR) but because repo rate linked advances are there in retail segment, automatically rate cut will happen to them.
RBI cuts rate by 25 bps, stance unchanged##RBI cuts rate by 25 bps, stance unchanged
The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) has cut interest rates by 25 basis points — fifth time in a row this year. The new repo rate stands at 5.15 percent taking the cumulative cuts to 135 basis points this year and lowest since April 2010.
India's manufacturing, services PMIs##India's manufacturing, services PMIs
Manufacturing PMI: Growth in India's manufacturing sector remained weak in September and forward-looking indicators in a private business survey suggest the country's wobbly economy is unlikely to start recovering anytime soon. The Nikkei Manufacturing Purchasing Managers' Index, compiled by IHS Markit, was 51.4 in September, unchanged from August.
Services PMI: At 48.7 in September, the IHS Markit India Services Business Activity Index posted inside contraction territory for the first time in three months. The headline figure was down from 52.4 in August and fell to its lowest mark since February 2018.
Replug: CNBC-TV18’s interview with RBI governor Shaktikanta Das##GDP numbers look worse, analysing what happened: Shaktikanta Das
In an exclusive interview to CNBC-TV18, RBI governor Shaktikanta Das said that the Q1 GDP numbers look much worse. “So we are analysing why exactly it has happened and overall if you see right from the beginning of the year,” said Das. At the last MPC, the RBI very clearly said that growth seems to be losing traction and therefore, growth is a matter of highest priority, he said. Read more
Highest monsoon rains in 25 years##Highest monsoon rains in 25 years to boost winter crops
Monsoon rains in India were 10 percent above average in 2019 and the highest in 25 years as seasonal rainfall continued longer than expected. "Even in the first half of October, above average rainfall is expected due to a delay in the withdrawal of the monsoon," said an official with the India Meteorological Department (IMD), declining to be named as he was not authorized to speak with media.
The monsoon generally begins in June and starts to retreat by September 1, but rains have lasted longer this year, triggering fatal floods and killing hundreds of people. Read more
Latha Venkatesh on what to expect from RBI policy meeting##Latha Venkatesh on what to expect from RBI policy meeting
Govt measures not enough to boost growth: Reuters poll##Govt measures not enough to boost growth: Reuters poll
Recent stimulus measures announced by the Indian government will be insufficient to boost economic growth significantly, said a majority of economists in a Reuters poll who predicted two more interest rate cuts this year, in October and December.
But nearly 60 percent of around 50 economists who answered an additional question said those stimulus measures were unlikely to have a notable impact on the economy. Read more
Chart: 60% of bankers expect RBI cutting repo rate by 25 bps##60% of bankers expect RBI cutting repo rate by 25 bps
JPMorgan: RBI to sound dovish, to assure of adequate liquidity##JPMorgan: RBI to sound dovish and to assure of adequate liquidity
The Reserve Bank of India will keep the dovish tone on the policy front and will also assure that adequate liquidity is provided to the market, said Jahangir Aziz, head of emerging markets economic research, JPMorgan.
“Central banks over the last 2-3 months doesn’t matter whether the RBI, the EM Central Bankers, the Fed or the ECB. Everyone is telling the market the same thing that they have space, they have more space, just to assure the market and having faith in the central bank to support growth,’ said Aziz in an interview with CNBC-TV18. Read more
MPC may lower GDP forecast for FY20##RBI Monetary Policy: MPC may lower GDP forecast for FY20
CNBC-TV18 poll: 60 percent of respondents expect the GDP forecast for FY20 to be lowered from 6.9 percent currently to 6.3-6.5 percent. 20 percent respondents even expect it to be lowered to 6-6.20 percent.
RBI to keep inflation forecast unchanged##RBI monetary policy: Inflation forecast to remain unchanged
Retail inflation inched up to 3.21 percent for August, but it remained within RBI’s target of 4 percent. All respondents in CNBC-TV18's poll expect the MPC to leave the CPI forecast of 3.5-3.7 percent for the second half of this fiscal to be left unchanged for now. Read more
RBI's fifth rate cut in a row this year?##RBI's fifth rate cut in a row this year?
The Reserve Bank of India is expected to cut benchmark interest rates for the fifth time this year today. The RBI is predicted to lower its key lending rate or the repo rate by 25 basis points (bps) to 5.15 percent, which would take cumulative cuts so far this year to 135 bps. Most analysts forecast one more cut of 15 bps in December.
RBI monetary policy: CNBC-TV18 Citizens’ MPC votes for 25 bps rate cut##RBI monetary policy: CNBC-TV18 Citizens’ MPC votes for 25 bps rate cut
All economists on CNBC-TV18's Citizens' Monetary Policy Committee unanimously voted for a rate cut. While four of the five members voted for a 25 bps rate cut, one panellist has voted for a 40 bps cut.
Moreover, the majority of economists polled by CNBC-TV18 said that the MPC will deliver a 25 bps cut, while 40 percent expect a 40 bps cut. Respondents are expecting a similar, if not more dovish tone from the central bank compared to the August policy.